Investment fund sales nosedive in January as investors dump UK portfolios

26th February 2015

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Retail investors took a step back at the start of 2015 with net sales of investment funds collapsing.

According to numbers from trade body the Investment Association retail sales totaled just £320m in January, down 72% from £1.25bn in same month last year and £1.7bn in December.

Within the figures UK All Companies and UK Smaller Companies funds endured respective outflow of £679m and £116m.

However the UK Equity Income sector saw net inflows of £280m, significantly down from the £531m achieved in December but still enough for it to be the best selling sector, followed closely by property.

With major developed stock market indices reaching record levels and the FTSE 100 this week surpassing the peak previously seen at the height of the dot com bubble in 1999, Jason Hollands, managing director at Tilney Bestinvest believes investors maybe nervous about putting new cash into the markets at a time when a number of high profile businesses have reported earnings setbacks.

He said: “The UK faces an uncertain outcome from May’s General Election and the news headlines have been dominated by a potential Greek exit from the Eurozone, terrorism and the conflict in Ukraine.”

But Laith Khalaf, senior analyst at Hargreaves Lansdown has another theory and wonders if the sales of pensioner bonds, savings accounts from NS&I, are to blame?

He said: “Two words spring to mind when considering the sudden slump in fund sales – pensioner bonds. There is no smoking gun, but it’s a fair guess that the market-beating NS&I bonds have attracted some of the cash that might otherwise have been invested. There may also have been some jitters caused by the Greek debt crisis, and the forthcoming UK election coming into view, which led investors to shun investment markets in January.”

Hollands added however that that while equities certainly are not at bargain basement prices, the level of the FTSE 100 is not a great barometer in itself of whether shares are fair value or expensive.

He said: “A true comparison with the UK market now and in 1999 should take account of 15 years of inflation. On this basis, adjusting for CPI, we estimate the FTSE 100 Index would currently need to be at around 9,472 points to be comparable with its 1999 peak of 6,930.

“On a Price/Earnings ratio basis, the FTSE 100 is currently on a 16 times multiple – higher than the longer term average – but certainly nothing like the 27 times multiple it sat at in 1999 as a result of astronomical ratings on tech and telecom stocks.”

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