UK investors channelled a record-breaking amount into funds during September 2017, with net retail sales of £5.6bn, according to the Investment Association (IA), the trade body that represents the UK investment managers. And during the first nine months of the year funds made net retail sales of £33.7bn, making 2017 already the highest-selling year on record.
The best-selling fund asset class in September was fixed income, with net retail sales of £1.8bn – its largest ever monthly inflow. This topped the previous monthly record for the asset class of £993m in August. Fixed income was also the most popular asset class in the third quarter of this year, with net retail sales of £4.9bn.
Sterling Strategic Bond was the best-selling fund sector in September, with net retail sales of £985m, albeit slightly lower than the £1.1bn figure for this sector in August.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: "It's been a bumper year for fund sales across the industry, after a very disappointing 2016, which suggests investors are returning to the fray in large numbers. Sales of bond funds have picked up significantly over the summer months, which is bizarre given the heightened expectations of rising interest rates over this period."
However, strategic bond funds could be an effective way for investors to get income, particularly those in or approaching retirement, even in a rising interest rate environment.
"Strategic bond fund managers are able to use tools such as derivatives to effectively make money in a falling or rising market, meaning they can navigate a rising yield environment [which happens when bond prices fall]," said Adrian Lowcock, investment director at Architas. "But the ultra-low interest rate environment is not going to change any time soon. Even though the Bank of England raised rates recently, it indicated that [further increases] will be a very slow process."
The second best-selling fund sector was Global, with net retail sales of £534m, followed by Europe excluding the UK with £489m.
Five best-selling Investment Association sectors
| Sector | Net retail sales in September 2017 (£m) |
| £ Strategic Bond | 985 |
| Global | 534 |
| Europe Excluding UK | 489 |
| Volatility Managed | 471 |
| Targeted Absolute Return | 273 |
Source: Investment Association
In terms of regions, equity funds with a global focus generated the highest net retail sales in September, with £534m, followed closely by Europe equity funds, which attracted £518m. Global and European markets have seen strong growth this year.
Net retail sales of equity funds by region
| Region | Net retail sales in September 2017 (£m) |
| Global | 534 |
| Europe | 518 |
| Japan | 191 |
| North America | 176 |
| Asia | -8 |
| UK | -103 |
Source: Investment Association
But investors continued to shun UK equity funds, which saw net retail outflows of £103m in September, and UK All Companies was the worst-selling IA sector in September.
But Mr Khalaf argued that despite the uncertainty surrounding the UK's withdrawal from the European Union, investors may want to think twice before cutting all their exposure to the UK market. "While the Brexit negotiations continue to go from pillar to post, the UK economy has actually held up rather well, to such an extent that the Bank of England has seen fit to raise interest rates for the first time in over a decade," he said. "No one knows what the economic impact of Brexit will ultimately be, but it's worth bearing in mind that the UK stock market has globally diversified income streams, and for many domestically focused companies, there's already a fair amount of doom and gloom baked into share prices."
