uk investors still fixated on fixed income

What to make of fund statistics? The IMA says retail sales in the first half of the year almost doubled those achieved in the second half of 2011, but weve just come off the back the worst month of the year so far.

uk investors still fixated on fixed income


Investors’ ongoing love affair with fixed income (best selling asset class for the tenth consecutive month at £417m) accounted for more than half of the meagre £820m fund sales total for June. This was well below the £1.2bn monthly average, and gives groups plenty to think about over the traditionally quiet summer months.

At least equity funds have returned to positive net sales (£120m) having registered £129m outflows in May. This was actually the only negative month for equity funds so far in 2012, and while the totals have been much lower than groups would hope for, at least things have stabilised somewhat. This is relative to the heavy outflows registered by equity funds towards the end of last year when they haemorrhaged over £1.5bn in the months between September and December. 

Of course, the IMA glosses over these details when it talks about the £8.1bn total fund sales so far this year almost doubling the £4.4bn achieved in the last six months of 2011. The popularity of fixed income (especially the sterling Corporate Bond and Strategic Bond sectors) has been quite remarkable though.

End of an affair?

The scourge of any affair is, arguably, when it all gets a bit dull and predictable, and investors can be forgiven for wondering what happened to all the excitement of not so long ago when corporate bonds were marketed as the “once in a lifetime” opportunity for growth and yield at negligible risk.

Average total returns for the Sterling Corporate Bond sector were 8% for the 12 months to 26 June, which is fine, though many investors are hungry for something a bit spicier, which is why emerging market debt (EMD) and high yield vehicles are getting more attention. The Global Bonds sector, which houses EMD funds, has been slowly creeping up the charts – it was the fifth best-selling sector in June with £72m, well above the £44m monthly average for the past year.

It’s on a global scale where equity investors are hunting too – Global Equity Income funds pulled in £133m in June while, tellingly, the UK Equity Income or UK All Companies sectors were both in negative territory. Our double-dip recession is likely to put more investors off the domestic market in the months ahead though, ultimately, it’s the eurozone crisis that continues to hold markets back.