PA ANALYSIS: Is the fixed income fund resurgence over already?

The latest set of Investment Association sales figures show fixed income funds enjoying a rare top of the table position in May, but will they rapidly fall from the affections of investors again?

PA ANALYSIS: Is the fixed income fund resurgence over already?


Fixed income has had its legs kicked out from under it over recent years by ultra-loose monetary policy around the world. Yields on everything bar the riskier end of high yield have been very low, turning many investors away from the asset class into the welcoming arms of grateful equities managers, or simply parking money in cash.

A small ray of light from UK fixed income managers’ point of view came in the form of the EU referendum. The fears of financial fallout from the vote inspired a ‘flight to safety’ of some degree among UK investors.

“Fixed income funds were the most popular amongst UK investors in May as they looked to lower their risk exposure ahead of the EU referendum,” said Guy Sears, IA interim chief executive. “It was by far the best-selling asset class as a whole, as well as taking up three of the five top selling sectors.”

The IA reported today that fixed income funds recorded net sales of £315m. Corporate bond funds did the best with net retail sales of £264m, while gilts funds saw inflows of £127m and strategic bond funds added £131m

While not huge numbers relative to the flows that are sometimes seen, against the backdrop of Brexit panic and relative to other asset classes it was a strong showing. Equities saw net outflows of £439m, property saw outflows of £360m and mixed funds saw outflows of £99m.

This flight to safety looked a very shrewd move, for two business days after the surprise result of the vote.

However equities rebounded spectacularly after that to leave the FTSE 100 higher than immediately before the vote and the FTSE 250 well on its way back.  

A further major blow against anybody hoping fixed income’s new found popularity is sustainable came in the shape of Bank of England governor Mark Carney’s speech last week. In opening the door to an interest rate cut and even fresh quantitative easing, he put fresh momentum into UK equities and made any improvement in bond yields seem even further away.

So that’s it. Game over, it was nice while it lasted.

This is not necessarily the case. Thanks to the increasing difficultly equities managers are having in generating income for investors, the door may be open a jar for a more sustained comeback.

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