According to the trade body, net institutional outflows amounted to just over £5bn over the course of the month. This is significant worse that the £844m net redemptions seen in January 2014.
Meanwhile, net retail sales amounted to just £320m – down from more than £1.1bn a year before and £1.7bn in the previous month. The figures mean that there was a total outflow of £4.7bn from the Investment Association universe in January.
Jason Hollands (pictured), managing director at Tilney Bestinvest, said: “With major developed stock market indices reaching record levels and the FTSE 100 this week surpassing the peak previously seen at the height of the dot com bubble in 1999, investors appear to be nervous about putting new cash into the markets.”
Performance of indices since 30 Jan 1999
Source: FE Analytics
Highlighting potential headwinds, Hollands added: “A number of high profile businesses have reported earnings setbacks, the UK faces an uncertain outcome from May’s general election and the news headlines have been dominated by a potential Greek exit from the eurozone, terrorism and the conflict in Ukraine.”
The concerns over the general election, as well as nervousness as the FTSE 100 approached a new record high, led to IA UK All Companies being the sector hit by the strongest outflows – £679m poured out of the peer group in January, marking the third straight month of net withdrawals.
FE Analytics shows high-profile funds such as Invesco Perpetual High Income, Schroder UK Opportunities and Investec UK Special Situations were among those suffering net redemptions during the month.
Other sectors that witnessed net outflows include IA UK Smaller Companies, IA Sterling High Yield, IA Global Emerging Market Bond and IA Flexible Investment.
UK equities were not universally dropped, however. The IA UK Equity Income sector was January’s best-selling sector after taking £280m in fresh money, with CF Woodford Equity Income was by far the biggest beneficiary followed by Royal London UK Equity Income and Marlborough Multi Cap Income.
Funds in the IA’s Property, Global, Sterling Corporate Bond and Global Equity Income sectors also witnessed decent net retail inflows last month.
Hollands says that investors should not necessarily be dropping UK equities and running for the hills.
“It is important to understand that while equities certainly aren’t at bargain basement prices, the level of the FTSE 100 isn’t a great barometer in itself of whether shares are fair value or expensive. A true comparison with the UK market now and in 1999 should take account 15 years of inflation,” he said.
“On this basis, adjusting for CPI, we estimate the FTSE 100 Index would currently need to be at around 9,472 points to be comparable with its 1999 peak of 6,930. That’s a long way off where the FTSE 100 is today.”
In addition, he notes that the FTSE 100 is currently on a 16 time price/earnings multiple. Although is higher than its historical average, it is nowhere near the 27 times multiple it reach in 1999 on the back of “astronomical” ratings on tech and telecom stocks.
“Of course none of us has crystal ball to know whether markets will continue to rise in the short term or face a ‘correction’ but it is important to not let your long-term financial plans get blown off course by short-term considerations,” Hollands added.
Tom Stevenson, investment director at Fidelity Personal Investing, shares this view and recently told FE Trustnet that the FTSE 100 does not look particularly expensive or cheap at the moment.
“What represented a stock-market bubble a decade and a half ago now looks like a market that’s neither cheap nor expensive,” he said. “Valuations look reasonable for an economy experiencing an ongoing recovery from a nasty recession.”
Stevenson also says that now is “as good a time as any” to invest in the UK and highlighted number of funds, including CF Lindsell Train UK Equity, AXA Framlington UK Select Opportunities and Marlborough Special Situations as potential options.
Charles Hepworth, investment director at GAM, is another arguing that the UK market does not look especially expensive, which justifies its current level and makes further progress likely.
“On a technical perspective I am optimistic that the market can make further gains from here with the FTSE 100 trading towards an upper range of 7,500, and this level possibly being met sometime during 2015,” Hepworth said.
“In the short term, the general election will hang on the UK market and it is likely this will prevent any serious movements from today’s level. For this reason we have moved to a medium-term underweight exposure to UK equities in our risk-rated model portfolios.”
“Remember, many global indices already hit their previous peaks a few months ago – the FTSE 100 is only playing catch-up to the rest of the pack that has already moved ahead.”
While Hollands does believe the FTSE 100 remains relatively attractive, he concedes that the air of uncertainty around the market could lead to some investors being nervous. He points out that they have the option of holding cash with a view to investing when conditions look more appealing or buying an absolute return funds.
He tips Invesco Perpetual Global Targeted Returns, Standard Life Global Absolute Return Strategies and Threadneedle UK Absolute Alpha, which as the graph below shows have all managed to outperform their average peer over the difficult conditions of the past year.
Performance of funds vs sector over 1yr
Source: FE Analytics