Are investors now turning away from equity funds?

26th March 2015

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Retail investors ploughed £845m into funds during February, marking a significant rise on the previous month’s £320m tally however on an annual basis sales plummeted by 54%.

The figures collated by trade body, the Investment Association, highlighted that property funds were the best-selling sector over the month after notching up sales of £304m – cementing the last 12-months as the best year ever for inflows into the asset class.

According to the data, retail investors ditched UK and US equities, preferring global, European and Japanese funds. UK equity funds endured a net outflow of £530m, marking the largest since the onset of the credit crisis in January 2008.

Commenting on the figures, Jason Hollands, managing director at brokers Tilney Bestinvest said: “In our view these are clear signs that investors are skittish on equity market valuations, a factor that may be further exacerbated by recent headlines around the FTSE 100 passing 7,000 points for the first time, even though this is a poor gauge of actual valuations which in price/earnings terms remain far below the levels since during the dot-com bubble.

“Cautious sentiment towards the UK equity market is almost certainly reinforced by the uncertain outcome of May’s General Election, despite the reasonably solid outlook for UK GDP growth.”

Hollands believes the relative preference for Europe and Japan as destinations for equity investment, is in-line with the view of some advisers, that the better opportunities are probably in those markets where “aggressive monetary expansion programmes are in full flow”.

He added: “Whatever the near-term uncertainties, it is important that retail investors do not get blown off course from their long-term plans. In particular, with ever more of the UK public having been drawn into the higher rates of tax in recent years, it makes sense to utilise tax efficient ISA and pension allowances.”

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