The Sterling Strategic Bond sector has led £1.7bn of outflows from the UK funds industry in August in a switch from July when it was the best-selling sector.
Fixed income was the highest selling asset class for the fifth month in a row as net retail sales reached £2.2bn. Equity outflows totalled £1.6bn by comparison.
However, the latest IA figures revealed the worst-selling IA sector in August was Strategic Bond with outflows of £756m.
Last month, the IA figures revealed Strategic Bond was the best-selling sector with net retail sales in July of £1.2bn.
IA chief executive Chris Cummings said: “Savers took almost £1.7bn out of the funds market in August, with equities feeling the heat this summer after a third consecutive month of outflows, totalling £3.2bn.
“As in previous months, diversification remained savers’ top priority. Mixed asset funds saw the highest level of inflows since the start of the year, with £706m invested in August. Savers’ appetite for risk-focused solutions also continued to grow, with the IA’s Volatility Managed sector seeing healthy inflows of £230m in August.”
Strategic bonds switch to out of favour
Shore Financial holds most of its bond exposure was in the Strategic Bond sector, however, the firm has just started moving clients away and adding in funds in different areas, said Shore Financial director Ben Yearsley.
But he was surprised to see so much come out of the sector in August.
“Is it because the outlook for returns is now so low that investors are sacrificing diversity for better yield elsewhere? It’s interesting that whilst strategic and corporate bond sectors were outflows, global and GEM bonds both saw healthy inflows. The big problem with the Strategic Bond sector is you only know in hindsight where the fund is positioned – you do lose a degree of control.”
Meanwhile Willis Owen head of personal investing Adrian Lowcock said: “They are an asset class where investors delegate the decision making to the fund manager so when investors make a decision to sell bonds they are the sector going to suffer some of the biggest falls.
“The other areas of bond markets are likely to see some tactical changes from sophisticated investors who want exposure to the asset class.”
GEM bonds sales surprise investors
Global emerging market bonds were the fourth best-selling Investment Association sector for August.
That surprised Yearsley because “it was a risk off month yet one of the riskier sectors did well”. “That probably shows the chase for yield,” he said.
Property also saw net retail outflows of £91m, while fixed income and equity experienced net retail outflows of £968m and £1.6bn, respectively.
Yearsley said equity markets had a shocking month in August, so it is “no real surprise” with equities having the largest outflows as sentiment and direction of markets does drive a lot of money.”
UK funds experienced net retail outflows of £697m, followed by Europe funds with £536m and global funds which saw £432m. Japan funds experienced net retail outflows of £122m.
On the other hand, ethical funds saw net retail inflows of £232m.
Lowcock said: “The rise in ethical is also interesting, the sector is starting to gain traction. Only small moves now but it has been one that has barely budged for years previously. “
