Investors remained on the sidelines in October as they took a “wait-and-see” approach to markets, according to the latest flows data from the Investment Association (IA).
However, those that did invest chose to put their money in alternative assets or safer, multi asset and bond funds.
Overall, net inflows from retail investors totalled £1.7bn for the month, the lowest figure since September 2020 – the month before coronavirus vaccines were approved.
Top of the pile was “other” funds, such as those in the IA Targeted Absolute Return, IA Volatility Managed, and IA Unclassified sectors. In total investors put a net £698m into these funds.
Bonds funds were second, with £597m in new money added during October, while mixed asset funds were third, with inflows of £578m.
The biggest hit to overall inflows in October came from equity funds, which bore the brunt of investors’ caution. Total inflows of £280m dragged down the overall. It was the lowest month since February 2021 and marked the second month in a row that investors had put less than £1m of new money into the sector.
Global stock market funds remained top of the pile, recording £586m of new money in October. The IA included the IA Global, Global Emerging Markets, Global Equity Income, Specialist and Technology and Technology Innovation under this umbrella term. The IA Global sector had the highest individual sector retail inflows of £730m.
Funds in Asian equity sectors were second, with £201m of net inflows, while funds in European sectors had slightly higher assets under management than the previous month, with £19m added on a net basis.
Conversely, the UK failed to capture the imagination of investors with net outflows from funds in the main UK sectors reaching £661m for the month. The IA UK All Companies sector was the worst-affected sector with outflows of £349m, the third month in a row of £300m+ outflows. It has also been the most-heavily withdrawn-from sector in each of these months.
North American and Japanese equity funds also suffered outflows in October of £187m and £8m respectively.
Chris Cummings, chief executive of the IA, said: “Building on what we saw in September, a key theme for October appears to be ‘wait and see’ for many savers.
“Uncertainty around how much, and how fast, interest rates are going to rise to try to ease inflation may be a factor but investors are also feeling the pinch of rising prices and may simply feel less able to put money aside, whether to cash savings or investments.
“In addition, investors will be keeping an eye on when central banks start to unwind quantitative easing more, which will have an impact on equity valuations.”
Figures for November could be worse, however, as the fears of a new coronavirus strain spreading to the UK has ramped up with the emergence of the Omicron variant.
This has coupled with inflation and interest rate fears, which combined have held back markets over the past week.
“Time will tell how the Omicron variant will impact sales in November and December,” Cummings said.
Around £1.5bn was added to tracker funds on a net basis, the seventh month in a row of more than £1bn. The industry is now worth £291bn, or 18.6% of all investors’ cash, double its level of 2013 (9.1%) and almost three times more than in 2011 (6.9%).
Responsible investment funds also attracted a further £1.5bn in October, taking the industry total to £88.8bn. The sector has only been monitored since the start of 2020, but already accounts for 5.7% of the total market.