This, he says, has caused them to consider alternatives to UK equities and take advantage of their recent run of performance, including those paying dividends.
“This has probably been overdone and actually the UK equity income sector is more likely a beneficiary of the weaker pound as largest the companies earnings are predominantly overseas,” he says.
“It is also important to remember that even an outflow of £429m is small compared with the popularity of the sector in recent years and at these levels it looks more like a bit of profit taking in the quiet summer months, which is supported by the fact investors have been re-allocating to defensive sectors such as Targeted Absolute Return.”
Darius McDermott, managing director of Chelsea Financial Services, agrees, pointing to the fact that in any one year the biggest sectors tend to suffer an attritional rate of about 15%.
“Historically outflows of this nature are a signal that UK buyers are turning negative on UK equites,” he says. “Given continued Brexit fears, uncertainty created by the recent election and the depreciation of sterling, you can see why, but other factors are also at play. For example valuations are no longer cheap. We have been in a bull market for the last 10 years, so is it really a surprise some investors are pulling money out now?”
Hughes concludes: “Interestingly, I think we have been here before as in the run up to the financial crisis, the sector suffered very poor relative performance against the market and then came roaring back. With this in mid. I certainly see UK equity income as an important part of an investor’s portfolio.”
