Investors flock to retail funds as confidence returns

by Stephanie Baxter from interactive investor |

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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. 

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. 

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”.

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