Investors flock to retail funds as confidence returns

Consumers invested more in funds during Q2 than during the whole of 2019, but UK stocks are still neglected.

Investors hunting for bargains have re-embraced retail funds after selling out in their droves in March, but UK stocks are still getting the cold shoulder.

The Investment Association’s (IA) latest research shows retail investors poured £11.2 billion into these funds in the second quarter.

The sector suffered record monthly outflows of £10 billion in March when the world entered lockdown due to Covid-19.  

But consumers have now invested more during Q2 than throughout the whole of 2019, when they put in a total of £9.8 billion. 

Global funds topped sales as investors sought to avoid being overexposed to one country during the Covid-19 pandemic. 

Fixed income was the worst-selling asset class in March, with £7.4 billion of net outflows. But it was the best-selling class in June, with £2.1 billion of net inflows, as investors looked for returns amid continued uncertainty. 

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Global bonds and corporate bonds had £868 million and £732 million of net sales respectively during the month.

For equities, global was the best-selling region in June with £503 million of inflows. In the first six months of the year, £2.8 billion was invested in global equity funds, despite the sector seeing almost £700 million of outflows in March alone. 

North America equity funds were the second-most popular region in June, with £328 million of inflows.

But investors still lacked confidence in the UK, pulling £1.1 billion from UK equity funds in June, and £662 million from UK all-companies funds – the worst-selling sector in the IA’s analysis. 

Top concerns were the outcome of Brexit, a potential second wave of coronavirus and the strained search for income as swathes of companies cut their dividends. 

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interactive investor’s fund analyst Teodor Dilov says: “Many investors wanted to get exposure to stock markets in order to benefit from the quick recovery of major indices. 

“At a regional level, the UK continues to be one of the most unloved places for investors’ capital. A combination of factors such as dividend cuts and ongoing uncertainty around the approaching Brexit forced savers to take a broader view and allocate to diversified global strategies with better risk-adjusted profile.”

In the second quarter, the IA’s global sector outperformed UK all-companies with returns of more than 5%, for example.

The IA’s chief executive Chris Cummings said with infection rates now rising globally post-lockdown and US gross domestic product having contracted 32.9% in Q2, the outlook for fund flows for the second half of the year “remains uncertain”.