UK investors piled money into funds in January with net inflows of £4.2bn, according to the Investment Association (IA), the trade body that represents UK investment managers. This was the largest amount invested since January 2018 and represents more than a quarter of the £15bn invested over the whole of 2019. With the tax year nearing its end, investors may continue to invest their money – unless hefty market falls in recent weeks causes panic and withdrawals from funds.
“The fund market got off to a strong start in the New Year,” said Chris Cummings, chief executive of the IA. “However, since then, coronavirus has affected economies around the world and, unsurprisingly, markets have reacted negatively to this uncertainty. While it’s important to take a long term-term view, with markets tending to overcome periods of volatility, we will have to wait to see how recent steep market falls have affected investor behaviour in February.”
Investors put £881m into equity funds during January, with £355m going into UK funds and £272m into US funds. They withdrew a net £86m from European equity funds, continuing a trend that saw investors take £3.8bn out of European equities funds in 2019.
But much of the money invested in January 2020 went into asset classes other than equities that can be more defensive during market falls. Investors put a net £1.7bn into bond funds, an asset class into which they put £11.6bn over the course of past year.
The money was invested in bond funds with varying risk profiles. Some £358m was invested in IA Global Bonds sector funds, many of which have a good level of exposure to defensive government bonds. Some £310m was invested in IA Sterling Corporate Bond sector funds, which tend to focus on higher-quality company debt. And £90m was invested in Sterling Strategic Bond sector funds, which have a variety of different approaches and risk profiles.
Funds focused on higher-yielding but riskier parts of the bond market, which could be more vulnerable as equity volatility feeds through into other asset classes, also took in money. Some £266m was invested in funds that focus on local currency emerging market debt, with £193m going into the IA Sterling High Yield sector. High-yield bonds can have a similar return profile to equities, meaning that they can be vulnerable in times of market stress.
Between the start of this year and 10 March, the IA Sterling High Yield fund sector average return was a loss of 3.3 per cent, according to FE Analytics. But the IA Global Bonds fund sector average over that period was a positive return of 2.5 per cent, and the IA Sterling Corporate Bond fund sector average return was 3.1 per cent.
The Targeted Absolute Return sector, meanwhile, which you can read more about in this week’s Big Theme, experienced net outflows of £120m in January. But outflows from property funds – a feature of the past year – appeared to slow.
Responsible investment funds took in a net £526m in January, the highest amount since the start of 2019 when the IA’s record on flows into these types of funds began.
Active and tracker funds enjoyed a similar level of sales over the course of the month, with each notching up a £2.1bn net inflow. And private investors accounted for a good portion of fund sales, with UK fund platforms accounting for £1.6bn of overall net inflows in January.
