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Investors continued to shun UK equities in favour of fixed income during October, according to figures from fund manager trade body the Investment Association (IA).
UK Equity Income was the least popular IA sector during the month with outflows of £272 million. Investors also withdrew £272 million from UK All Companies funds – marking the sixth month of outflows for UK equities as a whole.
Laith Khalaf, a senior analyst at fund broker Hargreaves Lansdown, put this down to the political and economic uncertainty that has been created by the UK’s plans to exit the European Union.
‘Investors are ploughing record amounts into investment funds, but at the same time there is an exodus from UK equities, with over £2 billion withdrawn from these funds so far this year. The root of this is no doubt the current cocktail of political and economic uncertainty enveloping the UK, combined with a stock market which is perceived to be propped up by a weak currency and loose monetary policy,’ he explained.
In contrast, fixed income was the best-selling asset class for the fifth consecutive month, attracting inflows of more than £2 billion. This compares to an inflow of £644 million into equity funds.
Strategic bond featured as the most popular sector during October, with inflows of £1.6 billion. Target absolute return funds, which aim to achieve positive returns with less volatility than the market, were a distant second with sales of £400 million.
Khalaf finds the significant inflows into bond funds surprising, given that the potential for higher interest rates presents a headwind for the asset class.
‘There looks to be little value in the bond world at the moment, but in times of uncertainty money does flow towards fixed income securities, seemingly at any price,’ he added.
Total inflows across IA sectors totalled £5 billion in October, which represents a substantial increase on the £873 million that was recorded over the same period a year ago.
Chris Cummings, chief executive of the IA, said: ‘2017’s record breaking run continued in October as monthly net retail sales were again in excess of £5 billion.'
'Industry funds under management also increased by almost £30 billion through the month which means that, at the end of October our members were responsible for £1.2 trillion of UK investor savings and investments,' he added.