In September, for the first time in 12 months sales of equity funds overtook those of bond funds, according to statistics from the IMA.
The IMA monitors only the retail flows of its member companies, so the asset allocation of institutional investors cannot be gleaned from the report.
It is often said that when retail fund flows start to favour an asset class or sector, your chance to get in at the bottom is missed, and that when the Sunday money sections start to write about the opportunities in said asset class, it is time to sell out.
But this time might be different.
Firstly, many pension funds also found themselves on the wrong side of risk when the financial crisis hit in ’08. This means they too have erred on the side of caution over the past few years in allocating money to “riskier” asset classes. (A change of approach that could well lead to individuals’ retirement income not hitting their expectations further down the line, but that’s a subject for another article.)
So, valuations of many equity markets have remained subdued because total fund flows into those regions have dropped off in the aftermath of the crisis.
This is not to say institutional investors cut their exposure to riskier asset classes altogether, only that this was pared back considerably.
Sector stats
Drilling deeper into the IMA figures, Absolute Return is found to be the best-selling sector, with £193m in net retail sales and the £ Strategic Bond Sector the second-most popular, with sales of £144m.
This shows that although allocations to equity strategies are on the up, investors do not have enough confidence in any one equity sector to send it to the top of the table.
Further proof of this is the fact the best-selling equity sectors were Global Emerging Markets (£139m) and Global Equity Income (£137m) – broad strategies that are able to invest in equities across a variety of different countries.
For the contrarian, then, Europe and Japan still look like good bets. In September Japan funds witnessed £92m of net outflows, while Europe including UK saw £27m in redemptions. Of the European markets, perhaps surprisingly, the least favourite is UK All Companies, with £205m in outflows, while Europe ex UK posted inflows of £94m indicating that market might have finally bottomed.
Meanwhile, the UK market for income is by now well saturated as it proved almost as popular as Global Equity Income, with £133m of inflows.
Do you think now is the right time to get into equities, or has the boat sailed? Which particular sectors do you think are attractive at the moment?
