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Investors ploughed a record-breaking £18.4 billion into funds in the first half of the year but the focus on overseas investment reveals they are still cautious about the Brexit effect.
Figures from the Investment Association (IA) reveal that following the inflows in the first six months of the year, funds under management now stand at £1.1 trillion. Net inflows in June reached £2.9 billion, a reversal of the trend a year ago, when a net £3 billion was pulled out of funds.
The record-breaking figures shows investors have ‘returned from their 2016 hiatus’, said IA fund market specialist Alastair Wainwright.
All asset classes reported an uptick in flows in the first half of the year, with mixed asset funds attracting the highest at £5.7 billion, followed by bond funds at £4.2 billion, while equity funds rebounded from last year's outflows to attract £4.1 billion of net investment.
The most popular funds were those in the Targeted Absolute Return sector, which attracted £2.2 billion in the first half of the year. The Sterling Strategic Bond sector brought in £1.8 billion and Global Equity sales were £1.6 billion.
UK equity sectors were the least popular, with investors withdrawing £1.1 billion from the three UK equity sectors in June. The worst-selling sector in June was the UK All Companies sector, which racked up outflows of £486 million.
Global funds were the best-selling in June, attracting £465 million of inflows, followed by Targeted Absolute Return funds at £447 million and Strategic Bond funds at £363 million.
Adrian Lowcock, investment director at Architas, said while the headline figures suggested 'animal spirits' had returned to markets, the underlying trends presented 'a more mixed picture'.
He pointed to the lack of appetite for UK equity funds, and the enthusiasm for targeted absolute return investments, as evidence of investor caution.
‘Investors are clearly cautious on the outlook for the UK and concerned about the impact rising inflation is having on the UK economy and the effects Brexit will have on the country’s economy,’ he said.
Lowcock argued high valuations were also leading investors to protect themselves against a potential market fall.
'Investors remain sceptical and are holding defensive assets including absolute return funds to protect themselves in the event of a correction or sell-off,' he said.
'Given that markets seem to be ignoring the risks and focusing on the positives this seems to be a sensible course of action
Despite the switch into global funds, he warned that there is still a ‘cautious tone’ due to inflated stock valuations.
‘While earnings growth has helped support major markets, driving some to record new highs, investors remain sceptical and are holding defensive assets including absolute return funds to protect themselves in the event of a correction or sell off,’ said Lowcock.
‘Given that markets seem to be ignoring the risks and focusing on the positive, this seems to be a sensible course of action.’