Investors show resilience in face of market turbulence as fund inflows grow

26th January 2016

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Investment funds under management hit a record high of £871 billion in 2015, data from the Investment Association reveals.

The inflows come in spite of the turmoil in markets as the Chinese slowdown and commodity woes dented investor sentiment.

UK Equity Income was once again the best-selling asset class of the year. Meanwhile tracker funds had their best year ever.

Separate research out today from Willis Owen also points to a resilient attitude among investors in response to turbulent times.

The survey conducted by Opinium, found that investors remain confident in their outlook for the economy. However, confidence is lower than it was 12 months ago – evidence that recent economic, social and political volatility has taken its toll.

However, more people are reporting an improvement in their personal finances than did so a year ago.

The poll asked people whether they are feeling more or less confident about the outlook for the UK economy for 2016. 32% of respondents said they were feeling more confident while only 17% said they felt less confident.

In comparison, last year 37% of respondents said they felt more confident and 14% less. However, in terms of their personal finances, 27% of people feel better off than they did a year ago, which is up from last year.

Laith Khalaf, senior analyst at Hargreaves Lansdown, says: “Private investors have still been squirreling money away into their pensions and ISAs despite the choppiness in stock markets seen throughout the latter half of last year.

“The low interest rate environment has no doubt helped people to invest more by reducing their mortgage payments, as well as making cash savings look relatively unattractive.

“The pension freedoms introduced last April have also boosted fund sales by encouraging more people to invest some of their pension at retirement, rather than simply buying an annuity.”

Khalaf adds: “UK equity income remains the best-selling sector for the second year in a row. This is little wonder given the everyman appeal of dividends as a provider of a valuable income stream in a world hungry for yield, as well as a source of growth if re-invested.

“Income fund managers may find they have to work a little harder to earn their crust in 2016 however, given the dividends of the oil and mining sectors look likely to come under further pressure.

“Tracker funds had a fantastic year in terms of sales and we expect further growth in this market as investors plump for either high quality active funds or simple, cheap passive funds, squeezing out the closet trackers in the middle. In performance terms 2015 was a tricky year for UK trackers however, given the high weighting to oil and mining companies required by their strict adherence to the make-up of the Footsie index.”

Commenting on the investor confidence survey, Jason Chapman, managing director at Willis Owen, says: “It is a reassuring sign that savers and investors remain stoic about the economy, when you consider recent volatility in the stock markets, the falling price of oil and the forthcoming EU referendum. However, the small dip in confidence compared to last year is evidence that these factors have had an impact and I expect them to be factors this year as well.

“Despite this small dip, many of us are actually feeling better off. This is no doubt a result of lower inflation, drops in the oil price meaning less pain at the pump, and wages in the UK finally starting to increase last year. When it comes to our own finances, there is a sense that the tide may be turning.”

Willis Owen’s research also finds that only 17% of 55-64 year olds say they are better off than they were 12 months ago, compared with 40% of 25-34 year olds who have benefitted from wage rises and relatively low costs of living. According to Willis Owen, this could be linked to stock market volatility being more keenly felt by older generations with more savings and investments, while the period of low interest rates is affecting income derived from deposit based accounts.

Liz Rees, head of Research at Willis Owen, adds “Looking at the year ahead, there are events which could produce further bouts of volatility. Although people are feeling more confident about their finances debate around a possible Brexit could lead to investors taking a more cautious stand. Elsewhere, rising interest rates in the US may have an impact on global growth prospects. We also have a US presidential election and uncertainty over the outcome could cause nervousness among investors.”

Liz Rees added: “There could be bumps in the road ahead for savers and investors. To navigate them successfully, careful research is needed before investing. While developed markets may still offer a more stable outlook, investors with a long-term horizon may wish to rebalance their asset allocation slightly towards areas which now look relatively attractive on valuation grounds.”

 

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