The one equity sector fund investors are buying

Investors are looking east for returns, as the UK stock market stalls this year, writes Sam Benstead

Japan funds saw the only positive inflow among retail investors in June, with £227 million moving into the sector.

The figures, from funds trade body the Investment Association (IA), sit in contrast to the nearly £1 billion taken out of funds overall in June, as the UK stock market moved sideways over the month.

Japan is having a moment, as inflation finally picks up and international investors look to profit from cheap Japanese stocks that are beginning to return mor cash to shareholders. The “Warren Buffett effect” is also having an impact, with the investment titan buying up Japanese financial groups this year.

• Invest with ii: Buy Investment Trusts | Top UK Shares | Open a Trading Account

The Nikkei 225 index of its largest companies is up 27% in local currency and 10.5% in sterling so far in 2023.

Interactive investor’s Super 60 list of recommended funds includes four Japanese equity funds: Jupiter Japan Income, Baillie Gifford Shin Nippon, Lindsell Train Japanese and HSBC Japan Index.

The best performer so far this year is HSBC Japan Index, up 8%.

In June, IA data showed North American equity funds had a net £657 million of outflows despite improved performance in the US market. Global funds saw net outflows of £417 million while UK funds saw outflows of £858 million.

• Eight investment trusts that could be takeover targets
• Fund Battle: Vanguard LifeStrategy versus BlackRock MyMap

Investors sold equity funds in June, with total net outflows of £1.3 billion, but moved money into bonds.  

Fixed Income funds saw net inflows of £126 million, while mixed asset funds (which contain bonds), saw inflows of £523 million.

UK Gilts was the best-selling sector, with net flows of £504 million, with Specialist Bonds in third place with £238 million of flows, and Government Bond in fifth with net sales of £173 million.  

Higher bond yields are attracting investors, with corporate bonds paying about 6.5% and gilts paying between 4% and 5%.

• Fund managers still not convinced by stock market rally
• What to own alongside Fundsmith or a low-cost global tracker fund

Tracker funds saw net retail inflows of £272 million in June 2023, taking the sector’s assets under management to £295 billion, or 21.1% of the UK’s funds industry.

Responsible investment funds saw a net retail outflow of £432 million in June 2023. Their overall share of industry funds is now 6.9%.

Chris Cummings, chief executive of the Investment Association, notes that despite a tricky past month, investors have been bullish this year, putting just over £6 billion into funds in the first six months of 2023. The majority flowed into bonds funds.