UK equities are edging their way back into investors’ good books as the FTSE 100 is on track to break its previous 52-week high before the end of the month.
According to Kunal Sawhney, CEO of Kalkine Group, UK shares are likely to move in the positive region as investors look ahead to the third quarter earnings.
“The July-September quarter will be the best indicator of performance and growth so far in the pandemic era as the Downing Street administration withdrew the curbs and social distancing guidelines for the first time in the past 17 months,” he says.
For the first half of 2021, the UK was certainly out of favour as Investment Association (IA) data showed UK funds to be the only equity fund region to experience net retail outflows of £77m.
However, in July retail sales for the IA UK All Companies sector hit £295m showing a significant shift in investor perspective.
Interactive Investor head of funds research Dzmitry Lipski explains: “‘Where next for investments?’ is the burning question in the minds of many investors as with the prospect of a new wave of Covid, the prevalence the Delta variant, inflation, the tapering of economic stimuli from central banks weighing on markets.”
Global remains the favourite
While some UK funds are clawing their way back to popularity, those with a more global mandate remain on top.
The IA’s data for July also supports investors’ preference for the more global-focused funds, as the IA Global sector topped the monthly sector list clocking up £862m in net retail sales. This follows on from net retail sales of £1.1bn in June.
Lipski adds that concerns about inflation and changing central bank policies are driving the demand for global funds.
“Our customers continue to favour globally diversified funds and have kept faith in portfolios with a solid track record of producing good returns over the long term.”
The top two best-selling investment trusts for August, according to Interactive Investor sales, were Scottish Mortgage and Smithson, both attractive because of their global focus. The third most popular trust was the Blackrock Throgmorton investment trust, which invests in UK smaller companies.
The preference for a global mandate also fed through to open-ended funds which remained a favourite among Interactive Investor customers, accounting for eight out of the 10 fund bestsellers in August. Fundsmith secured the top spot, ahead of Baillie Gifford Positive Change and Vanguard Lifestrategy 80% Equity in second and third positions respectively.
Dividends divide opinion
While investor sentiment is turning positive on the region, and despite the positive movements being seen in the FTSE 100, UK equity income funds are yet to benefit from the surge. July marked the 14th straight month of outflows for the IA UK Equity Income sector, as investors pulled out £46m.
“During those 14 months investors have pulled almost £5bn from UK equity income funds,” says AJ Bell head of personal investing Laura Suter (pictured).
“It would appear the scars of the dividend drought in UK equity markets last year are still fresh for investors, as they’ve failed to return to the market despite dividends recovering.”
