Interactive Investor

Fund sales are booming – these sectors are attracting the most cash

5th June 2023 10:31

by Sam Benstead from interactive investor

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Investors opted for income-generating bond and money market funds in April, writes Sam Benstead. 

A pound symbol representing fund flows 600

UK investors poured £2.8 billion into funds in April – a £1 billion increase on March, according to data from the Investment Association (IA), the trade body for the funds industry. 

All asset classes experienced inflows in April, with bond funds and money market funds each receiving £1.1 billion from investors. 

Following interest rate rises around the world, bonds and money market funds finally pay a good income again, making them a far more attractive investment proposition.

Money market funds, which invest in low-risk, soon-to-mature bonds, yield about 4%. This cash-like investment has pushed the Royal London Short Term Money Market fund on to the interactive investor most-bought funds list a number of times this year.

Bond funds can yield even more, with the yield to maturity on investment grade bonds now at more than 5%, and gilts paying investors more than 4% a year. Riskier parts of the bond market, such as high yield or emerging markets, have even higher yields.

Distribution yields – which measure the amount of income a fund generates and returns to investors – will lag the gross redemption yield of a bond fund, which assumes bonds are held to maturity and the principal is paid back in full, when interest rates are rising.

Tracker funds experienced another strong month, with inflows of £1.6 billion, according to the IA. Passive funds dominate the ii list of most-popular funds, with Vanguard’s LifeStrategy range proving very popular.

Passives offer investors low-cost, simple, and effective exposure to stock markets, asset classes and sectors. While such funds will not outperform due to the fee that is levied, they will also avoid significant levels of underperformance.

In equities, global funds were the most popular, adding £340 million in assets. Global funds, such as Super 60-rated Fundsmith Equity and iShares Core MSCI World Ucits ETF, give investors a one-stop shop for shares from around the world.

They are generally overweight US shares, which has boosted performance relative to funds that specialise in UK or European stocks over the past decade.

Investors heavily sold UK funds in April, with the IA finding that £1.3 billion left the sector. Europe and Asia funds also saw outflows, totalling £158 million and £54 million.

Chris Cummings, chief executive of the IA, said: “April saw a surge in consumer confidence with £2.8 billion invested in funds, the highest level since August 2021. This month, we have seen investors opt for a cautious approach favouring bond funds, which saw £.1.1 billion inflows, and choosing globally diversified equity funds. UK gilts also benefited, with £259 million invested in April. 

“Demand for ISAs rose in April, with £342 million invested within the tax-free wrapper, five times more than the previous month. This was, however, less than the same time last year, with £646 million invested in April 2022.”

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Related Categories

    FundsBonds and giltsETFsUK sharesEmerging marketsSuper 60

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