Bond funds made a surprising return to net inflows in July, as investors continued ditching equities and other riskier assets in droves.
Investors poured £893m into fixed income funds over the period, having previously withdrawn cash every month over the first half of 2022.
The change in sentiment meant fixed income was the best-selling asset class, followed by money market, with inflows of £468m. Targeted Absolute Return and Volatility Managed also proved popular, collectively bringing in £283m.
Against the uncertain market backdrop, equity funds remained out of favour, racking up £1.6bn of net redemptions, following on from £2.3bn in June.
Collectively, UK retail funds experienced their sixth month of net outflows, with investors pulling £129m. But this was down from the stonking £4.5bn that flooded out in June.
UK gilt sell-off ramps up amid cost-of-living squeeze
Corporate Bond funds were the second bestseller in July, attracting £495m of net retail sales, and UK Gilts were also among the top five, netting £199m.
| Short Term Money Market | £513m |
| Corporate Bond | £495m |
| Volatility Managed | £267m |
| UK Gilts | £199m |
| Global Equity Income | £153m |
Source: Investment Association
Despite the lack of love for equity funds generally, global equity income strategies remained popular, taking in £153m, which was broadly flat with the previous month.
Though investors warmed to bonds in July, IA chief executive Chris Cummings (pictured) said it is uncertain whether this change of heart will last.
UK government bonds have sold off sharply in recent weeks over fears Britain’s energy crisis will exacerbate inflation, which is already running hot at 10.1%, and trigger further rate rises. On Tuesday, the yield curve inverted with the 2-year gilt rising to 3.21%, as the 10-year gilt yield slipped to 2.97%.
Investors continue to pull money from UK and European equity funds
The outlook remains equally fraught for equity funds, as the surge in the cost of borrowing heaps more pressure on corporates and households and puts the UK on the path for a recession.
This has been reflected in July’s data, with UK All Companies and UK Equity Income funds haemorrhaging £457.8m and £332.5m.
The only sector that fared worse was the Europe ex-UK sector, which leaked £470.9m.
“Amidst this considerable market uncertainty, investors continue to weigh the push and pull factors of putting money aside to meet their longer-term financial goals and the impact of the escalating cost-of-living crisis on their ability to invest,” Cummings said.
