According to the Investment Association (IA), so far in 2017 some £5.8bn has been invested into the Sterling Strategic Bond sector, while just over £3bn has flowed into Targeted Absolute Return funds. The IA revealed on Thursday that in October alone some £1.6bn was invested in strategic bonds, which is the third month in a row the sector has topped the net retail sales charts.
On the flipside, so far in 2017 the IA China/Greater China has witnessed outflows totalling £50m, while the UK Smaller Companies has seen inflows of just £138m as investors have generally fled from UK equities this year.
While the rationale for such a cautious and defensive stance is not without logic, it has lead to some large gains being missed out on this year. Instead, those who were rewarded most in 2017 were those who took more risk.
This is shown by the fact that over the year to 1 December, the China/Greater China sector, with a return of 31.5%, was the best performing IA peer group. Which sector took second place? Yep, you guessed it (or rather many did not guess it at the start of the year), it was UK Smaller Companies.
The third best performer, Technology & Telecommunications, only pulled in £235m of inflows this year, as investors have generally preferred global equities, mixed investment and bond funds.
Sadly for those who did prefer these sectors, not one has appeared in the top 10 for performance so far in 2017. Instead, along with the ever popular Sterling Strategic Bond and Targeted Absolute Return sectors, both rank in the bottom 10 performers, with returns of 4.9% and 3.29% respectively (from 31 December 2016, to 4 December 2017).
The worst performing sector overall this year has been UK Gilts, which managed a paltry 0.69% sector average gain.
The worry now is what happens next? Seasoned investors, who invest over much longer cycles than one year, will likely be unconcerned by these findings. A defensive stance makes a lot of sense right now, especially with so much danger around politically.
However, retail investors can be a fickle bunch, often being accused of chasing hot funds and hot money, namely buying at the top and selling at the bottom.
With the numbers suggesting many might have missed out on gains in China, UK Smaller Companies and tech this year, some maybe tempted to chase lost ground. The danger of such a tactic is not only might that you could be crystallising losses, but also buying assets at their most expensive.
All eyes will be in both November’s and December’s sales figures to see if this has been happening …
