Equity funds remain top choice for investors

The top four slots of the five best-selling fund sectors were all filled by equity fund sectors, with Global Emerging Markets remaining in its best-selling position from December. Its net retail sales for January topped £223m, while in the second position European equity fund sales have had their best month since August 2000. This contrasts greatly with the performance of fixed-income funds, which continue their downward trend in net retail sales with an outflow of £85m.

Investors' enthusiasm for equities matches that of equity investment professionals. According to Aviva Investors' annual fund manager survey, a majority of equity managers - 69 per cent - are more confident about markets than they were this time last year, after equities beat their expectations in 2012.

This new bout of optimism in investors for equity funds may be down to the consensus that central banks have done much to calm the markets, although the eurozone remains an area of major concern, as does uncertainty about the outcomes of the US fiscal cliff. Despite these fears, 100 per cent of equity managers believe that IPO activity will pick up in 2013.

Peter Fitzgerald from Aviva Investors comments: "While risks have by no means dissipated entirely, it does appear as though the investment professionals are expecting a rotation from bonds to equities."

However, Ashish Misra, head of investment policy and research at Lloyds TSB Private Banking, remarks that the idea of a "great rotation" from fixed income into equities is "a curious one, as every seller requires a buyer". He says: "Even if there is an overall flight of investors from bonds into equities, the rise in bond yields this causes will cap any gains in equities, as higher interest rates usually depress valuations on riskier assets such as stocks and shares."

Fund sales statistics

Source: IMA