Equity and bond funds tumble in UK as volatility hits

Equity funds in the UK in February suffered net outflows for the first time in 13 months, with investors pulling £136 million (€156 million), according to figures published today by the Investment Association.

The worst performing sector was funds focussed on UK equities which saw a £510 million net outflow in February while investors continued to allocate to Europe (£216 million), Asia (£197 million) and Japan (£125 million).

North America and global funds saw net retail outflows of £31 million and £66 million respectively.

Fixed income funds also experienced a net outflow, of £235 million, in February with negative net sales in the sterling corporate bond and global bond sectors, and, compared to previous months, a smaller net flow into strategic bond funds.

This compares with a net inflow into fixed income funds of £1.6 billion in January and compared with a monthly average inflow of £1.2 billion last year.

It was the first time in eight months that fixed income had not topped the Investment Association’s monthly retail sales table.

Overall retail investors bought £1.2 billion of UK authorised investment funds in February (down from £2.3 billion sales in February 2017) while institutional investors bought £2 billion.

Market volatility led to total assets under management falling slightly to reach £1.2 trillion by the end of the month – compared with £1.1 trillion in February 2017.

Mixed asset was the best-selling asset class in February with net retail inflows of just over £1 billion, while money market funds attracted £455 million and, in third place, property funds enjoyed net retail sales of £94 million.

Interestingly, tracker funds, whose returns are generally more sensitive to market volatility, saw a net retail inflow of £796 million in February.

Tracker funds under management stood at £166 billion as at the end of the month while their overall share of industry funds under management rose to 13.7% up from 13.4% in February 2017.

Alastair Wainwright, a fund market specialist at the Investment Association, said: “The old saying that when the US sneezes the rest of the world catches a cold was shown to still be true in February.

“US markets sold off on 5th February as strong employment figures caused concern that the Federal Reserve will need to raise interest rates higher than expected.”

Laith Khalaf, an analyst at Hargreaves Lansdown, highlighted the “abrupt end” to the boom in fixed income fund sales in February and said that this had significantly weakened overall fund flows.

“The tantrum we saw in markets at the beginning of the month was prompted by fears that US interest rates might rise faster than expected, which clearly dampened the mood of fixed income investors,” he said.

“The popularity of bond funds has been masking a gradual exodus from UK equity funds that has been taking place ever since the EU referendum and continues apace today with another £510 million walking out of the door in February.”

©2018 funds europe

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