UK equities continue to be shunned despite more than £11bn being pumped into funds in the second quarter, according to the latest Investment Association figures.
Investors pulled £1.1bn from domestic equities in June with UK All Companies coming in as the worst-selling sector with an outflow of £662m and UK Equity Income shedding £327m.
In May investors piled £220m into the UK All Companies sector.
But overall June marked the third consecutive month of inflows as £2.2bn flowed into funds, taking the total for the second half of the year to £8.8bn.
Cumulative sales in the second quarter alone reached £11.2bn which outpaced the £9.8bn seen in the whole of 2019. This followed the highest ever monthly outflow of £10bn in March as investors reacted to international Covid lockdown measures.
Fears of a second wave steer investors from UK funds
Willis Owen head of personal investing Adrian Lowcock said the data shows the speed with which investors returned to markets following the sell-off in March, but it was notable that investors began to shun the UK in June.
“This could be down to a combination of factors – the UK lacks exposure to the big secular growth technology companies that have led the rally since lockdown and has a bias towards value stocks, particularly those areas most affected by this crisis,” he said. “With fear of the virus still high and regional lockdowns continuing, the confidence in the economic recovery has waned.”
AJ Bell personal finance analyst Laura Suter said: “Worries about a second wave of the virus in the UK, fears about the nation’s economic outlook and the current drought of income in the market all turned investors away in search of better prospects elsewhere.”
Global funds top sales charts
IA Global was the best-selling sector in June with net retail sales of £930m followed by Global Bonds with £868m and Sterling Corporate Bond with £732m.
Lowcock added: “The global sector continues to attract investors as funds in this space have focused on growth stocks and technology giants, wherever they may be listed. In a world of low interest rates, companies that offer above-trend growth look increasingly attractive and momentum in markets, supported by quantitative easing, is behind the biggest companies getting even bigger.”
On an asset class basis, fixed income was the best-selling during the month with £2.1bn in retail sales, followed by equity with £421m and mixed asset with £398m.
Property funds experienced an outflow of £115m.
Tracker funds rake in £2.1bn
Responsible investment funds saw a net retail inflow of £669m in June taking total funds under management to £33bn at the end of the month. Their overall share of industry funds under management was 2.6%.
Tracker funds chalked up £2.1bn of inflows in June after investors had shunned them earlier this year in favour of active managers.
Suter said: “This is likely because active managers have failed to outperform on average in many sectors during 2020’s volatility and market recovery, leaving investors disappointed and switching back to cheaper rivals.”
The Targeted Absolute Return sector lost £323m during June and Suter noted these funds amassed £3.5bn of outflows in the first six months of this year alone.
“Investors have been fleeing the sector for two straight years now, with 24 consecutive months of outflows totalling £11.4bn, as disappointing performance from some of the behemoths in the sector coupled with worries about how well the sector as a whole was performing mean investors have lost faith.”
IA chief executive Chris Cummings (pictured) said: “With coronavirus infection rates now rising globally post-lockdown and US real GDP having contracted 32.9% in Q2 – the highest ever fall – the outlook for fund flows for the second half of 2020 remains uncertain.”
