Retail investors have been favouring different asset classes to institutional investors in recent months, according to IMA figures, suggesting that they may be missing out on some key market trends.
Institutional investors have been selling out of IMA UK Equity Income funds while demand has remained strong among retail buyers.
The latter are also showing stronger demand for smaller companies funds and are less keen to buy into North American funds, despite the strong stock market rally in recent months.
Tim Cockerill (pictured)
, head of research at Rowan Dartington, said: "I think it’s a well-established pattern that retail investors are late to the party."
"However, we heard for quite some time that people buying bonds were late to the party, but it has worked pretty well for them anyway."
"Sometimes being late to the party doesn’t matter if the party carries on."
UK Equity Income
Net sales to retail investors of IMA UK Equity Income funds in January stood at £47m, according to IMA figures, although institutional investors made net sales worth £220m.
This continues a trend seen in December, where institutions sold out of the asset class and retail investors kept buying.
A series of high-profile managers have told FE Trustnet
in recent months that they have become concerned about valuations in the sector and that yields are falling to unappetising levels.
Cockerill said: "What may be happening is that institutional investors could be rotating out of more defensive equities into overseas ones such as emerging markets."
"That’s an asset-allocation call, because they are saying these places are better places to invest."
"On the other hand, perhaps smaller retail clients are rotating some money out of bonds, having bought into the story that bonds are expensive and they can get a better yield on equity income."
UK Smaller Companies
UK smaller companies had an excellent 2012 and many high-profile managers have suggested that this year won’t be as good.
Yesterday Ed Beal, manager of the Dunedin Smaller Companies
trust, told FE Trustnet
that he was finding more value in the mid cap area of the market and shifting his trust into that sector.
FE Alpha Manager Giles Hargreave
is another manager to have recently warned that smaller companies will be unable to repeat their 2012 performance this year.
However, IMA figures show that retail investors bought £63m worth of the funds – net of sales – and institutional investors just £14m.
A similar pattern was seen in December, when there were net outflows from smaller companies funds among institutional investors, while retail investors bought £53m.
Institutions bought more IMA UK All Companies funds than retail investors, suggesting they may be moving into the mid cap funds that dominate the performance tables in that sector.
This raises the possibility that retail investors are buying into a trend that has had its best days.
Cockerill said: "The interesting thing is that a lot of the smaller companies funds have a lot in the mid caps anyway."
"I actually think in a way the retail client is buying the mid cap story perhaps without even being aware of it."
"I do not think the story is over for smaller companies. It could be a good place to be; we see a lot of M&A activity in the next year too. Of course, that’s if you are taking a long term view."
Retail investors sold out of £45m worth of North American funds in January, despite the strong rally in the market that has continued to this day. Institutional investors bought £17m worth.
According to data from FE Analytics
the S&P 500 index has risen a further 6.75 per cent since the end of January.
Performance of index since 1 Feb 2013
Source: FE Analytics
Cockerill says that it is a puzzling time to be selling North American funds, but it all depends on what people are buying instead.
The IMA Global Emerging Markets and IMA Asia Pacific ex Japan sectors have both seen strong inflows from retail investors that are much higher than those from institutional buyers.