These factors have all contributed to a shift in investor attitudes, causing individuals to move away from the volatile Asian and emerging markets, moving instead, towards more defensive assets.
Trend will last into 2013
These trends are likely to continue throughout the summer and could well carry on into the New Year, sparking fears that the increased pressure on high-risk markets may cause a return to the slump of 2011.
Having said that, markets are always best to invest in when they are at their weakest, so for those considering the long-term potential, these are worth keeping an eye on. While we wait for the current turmoil to pass, assets to prioritise would be those which pay you to wait, such as equity income and corporate bonds.
Appetite for riskier assets such as Asian or emerging markets equities has fallen significantly. Having contributed to 31.24% of all ISA and SIPP sales in March they now account for 1.68% and 4.26% respectively. At the same time emerging markets and Asian equities have been amongst the worst performers with MSCI Emerging Markets losing 10.17% and MSCI Asia falling 8.51%.
Emerging markets and Asia lagged established markets in the rebound in June as S&P 500 and FTSE All Share returned 2.18% and 4.82% respectively, while the MSCI Emerging and MSCI Asia managed 1.97% and 0.67% respectively.
Absolute return demand up
Meanwhile defensive assets have shown the opposite in fortune for investors. Demand for absolute return funds, which are supposed to provide some protection against volatile and falling markets has doubled, accounting for 10.51% of sales in May and 12.42% in June compared to 5.29% in March.
Demand for equity income remains buoyant throughout, only slipping to 8.38% in May as investors stayed in cash, but demand rebound strongly in June to account for 18.91% of total sales slightly higher than the 14.85% & 16.10% seen in March and April. This rebound in demand came with a strong recovery in UK shares with the FTSE UK Equity Income returning 5.53% in June.
Likewise corporate bond funds have remained popular with investors with demand rising in April and May to peak at 17.09% before slipping back a little in June to 14.13%. This peak in demand also coincided with a stronger performance from corporate bonds returning 1.58% (Markit Iboxx Sterling Corporates) as investors globally became more cautious.
