Friday, August 5, 2022

Funds hit by £4.5bn outflows amid ‘rising economic uncertainty’

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Analysts at the Investment Association (IA) said the outflows were the result of “increasing economic uncertainty” after a challenging first half for market performance

Analysts at the Investment Association (IA) looking at market data said it was the result of “rising economic uncertainty” after a challenging first half for market performance.

UK savers withdrew £4.5bn from mutual funds in June, the highest monthly outflow of the year so far and the second-highest on record, according to new research.

Adrian Lowery, a personal financial analyst at investment platform Bestinvest, said I that despite the cost of living crisis causing an unstable environment, investors should be careful to follow this trend.

He explained, “There are two reasons for these outflows: one is that some investors have responded to volatile markets by fleeing their investments; The other is that amid the cost of living crisis, households are freeing up cash to ensure they have a cash savings buffer.

“But the best policy for most retail investors is to sit still during times of volatility and weather the storm if they can – selling exchange-based funds now is likely to see only losses.”

Looking at IA’s other key results for June, equity funds saw outflows of £2.3bn, largely stemming from globally diversified equity funds, which saw outflows of £1.3bn, the largest outflow since the Brexit referendum 2016 represents.

Meanwhile, blended funds also saw outflows of £268m, while tracker funds saw retail net outflows of £41m this month, just the second outflow in a decade, reflecting continued uncertainty in market conditions.

As for IA’s best-selling sector, Volatility Managed saw net inflows of £248m in retail as investors turned to investment managers to help them manage the volatility of their returns.

Global Equity Income was the second best selling sector with net retail sales of £189m.

Responsible investment funds also remained inflow, with net retail sales of £71m in June 2022, down from £1.6bn in the previous month.

In terms of regions, Japan was the top performing equity fund region in June with retail net sales of £15m.

All other equity regions saw outflows, with North America costing £12m, Asia £272m, Europe £445m and UK funds £690m.

Overall, global funds saw outflows of £1.3 billion.

Commenting on the results, IA Chief Executive Chris Cummings said: “Savers are anticipating a slowdown in economic growth and preparing for further rate hikes as we break new ground for markets.

“Higher interest rates mean weaker performance prospects for the high-growth companies that helped fuel the bull market of the last decade. Outflows from equity funds this month suggest investors are looking for ways to better balance their savings.

“All major asset classes saw outflows in June as investors continue to adjust to the end of the low interest rate environment. Investors turned to lower-risk asset classes as a bulwark against rising market uncertainty and UK gilts sold well.

“Although the current market environment presents challenges, it is more important than ever for investors to take a long-term view of their investments in order to achieve their savings goals. By demonstrating the capabilities and resilience of our industry, investment managers can guide investors through uncharted waters.”

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