According to Investment Association figures, £1.7bn left equities in September marking the fourth consecutive month of outflows. This took the overall net retail outflow from equities to £4.6bn during Q3, its largest ever quarterly figure.
Sterling corporate bonds also suffered heavy losses during September, shedding £917m. This followed a £309m loss in August, taking the total net retail outflow over the past two months to £1.2bn.
Fairview Investing investment consultant Ben Yearsley said: “Two things are at play: risk aversion on the equity front and sterling aversion on the bond front because the past quarter was volatile from a Brexit point of view.”
UK funds have lost £15bn since referendum
UK equity funds alone saw net retail outflows of £676m in September, with record outflows in Q3 totalling £2.3bn. The UK All Companies sector lost £462.3m while UK Smaller Companies funds shed £61m during the month.
Since the Brexit referendum vote, UK funds have lost almost £15bn, AJ Bell personal finance analyst Laura Suter noted.
She added: “The UK All Companies sector clocked up almost £500m of outflows. The sector has seen just two months of inflows over the past two years, and during that time the FTSE All Share has risen just 8%.
“Investors also continued to ditch their investments in smaller UK companies, at a more modest pace than previous months with £61m of flows out of small companies funds in September, perhaps buoyed by the turnaround in the market in recent months. So far in the year to the end of September, the FTSE 250 has performed better than the FTSE 100, gaining by 17% compared to 14%, largely due to a rally in the past two months.”
Willis Owen head of personal investing Adrian Lowcock said: “I guess it is largely to be expected from the equity point of view because there’s been a lot of concern on global markets and the global economic outlook. So not just Brexit, but also US-China trade relations and economic data has been weaker.”
Lowcock also said during the quarter there was rotation from growth into value stocks which is a sign investors were nervous about valuations.
The £ Strategic Bond sector was the best-selling in September drawing net sales of £721m. This represented a reversal in fortunes for the sector from August when it was the worst-selling with -£756m.
Lowcock said: “For a lot of people, the best way to get exposure to bonds is through strategic bond funds because that effectively employs an expert in the bond market and many really do need that expertise.”
Beware the ‘Brexit bounce’
Global bonds was the third best-selling sector with net sales of £315m during September, but Yearsley warned those investing in local currencies over the risk a “Brexit bounce” could pose to the direction of sterling.
“The risk of getting out of sterling is you do have the Brexit bounce, and then you get caught on the on the flip side when sterling goes up and all your overseas assets do poorly. So that’s the danger of going to the global bond space.
“Thinking about Corbyn risk, Brexit risk, sterling risk, the way to mitigate all of them is to buy hedged share classes.”