Fixed income funds attracted £1.8bn throughout the month of August, according to the Investment Association, in the face of a shaky equity market and the beginning of long-awaited rate cuts.
The strong performance from bonds pulled overall sales of investment funds to £804m for the month, despite losses across equity, money markets, mixed asset and property. It marks the third month in a row that sales have stayed net positive.
Equity funds experienced the largest outflows for August, losing £408m. It marks the second month of outflows for the asset class, which dropped £50m in July after a June upswing of £1.2bn.
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Bonds, however, paint something of the opposite picture over the last three months, after moving largely in tandem with equity until June this year. August is the bond sector’s second month of inflows, after a £518m increase for July, yet it lost £1.2bn in the month of June. Government bonds were the largest draw for the asset class this month, with £837bn in inflows.
Miranda Seath, director of market insight at the Investment Association, said: “The Fed’s more aggressive interest rate cut of 50 basis points in September represents a significant milestone, as the Fed seeks to steer the US economy to a soft economic landing and markets responded positively.
“We have moved past the peak of the rate cycle in the UK and the US and the outlook for equity markets is improving but investors remain cautious, continuing to opt for bonds over equities. Recent short-lived market volatility in the US at the end of July was partly fuelled by poorer than expected jobs growth. The path to a soft landing could be bumpy and this could bring new pockets of market volatility. And whilst UK investor confidence is improving investors are also waiting to see what the Autumn Budget holds. Post Budget we may see further adjustment to asset allocation.”
August did not show investor confidence in the home market as of yet, as UK All Companies experienced £629m in losses, the largest across all sectors. UK funds by region also dropped £829m. Just North America and global funds attracted investors overall for August, with regional inflows of £527m and £308m, respectively.
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