A sharp return of volatility in the markets saw investors buy into cash and cautious funds in February, while dumping equity and bond products during the month’s sell-off.
The Investment Association’s monthly sales figures for February 2018 show mixed asset funds coming out on top after capturing over £1bn in net retail sales while money market sales surged to nearly £500m.
In contrast, equity and fixed income also were struck with respective outflows of £136m and £235m.
Architas investment director Adrian Lowcock said: “Investors drop in confidence about the direction of equity and bond markets is clearly reflected in the most popular asset classes with £455m being put on the side-lines through money market funds. Some investors are clearly choosing to protect the gains made.”
These fund flows came amid a big market sell-off due to fears of high interest rates following better-than-expected employment figures in the US. A global domino effect took place, leaving markets feeling unsteady after a year of low volatility in 2017.
Alastair Wainwright, fund market specialist at the Investment Association, said: “The old saying, ‘when the US sneezes, the rest of the world catches a cold’, was shown to still be true in February. US markets sold off on 5 February as strong employment figures caused concern that the Federal Reserve will need to raise interest rates higher than expected.
“The contagion swiftly moved round world markets with Asian and European bourses all falling significantly.”
Net retail sales (UK investors)
Source: The Investment Association
Investment Association sales figures show that net inflows for February stood at £1.2bn, a stark contrast to previous months, which posted sales upwards of £3bn peaking at over £5.5bn in September 2017.
Reports produced by the Investment Association provide us with a clearer picture of where the money went, revealing anxious investor sentiment toward the market.
The large inflow of £1bn into mixed asset funds was in line with January figures. A move into cash proved to be the only dramatic increase with the IA Short Term Money Market sector taking in £84m, compared with a net outflow of £103m in January.
European, Asian and Japanese equity funds benefitted from net inflows during the month but UK, global and US equities saw money pulled out. UK funds lost £510m, with IA UK Equity Income being February’s weakest sector after £306m was redeemed.
Almost all fixed income sectors were hit with outflows in February, while the IA Sterling Strategic Bond sector’s £346m net sales suggests investors are now looking for a more flexible approach to the market.
Net retail sales by asset class (UK domiciled funds)
Source: The Investment Association
Indeed, IA Sterling Strategic Bond was the best-selling sector of February. It has received the highest net inflows in six of the past seven months.
FE Analytics shows the biggest inflows went to Invesco Perpetual Tactical Bond, which took in £120m, followed by the Janus Henderson Strategic Bond and the GAM Credit Opportunities GBP bringing in £57m and £36m respectively.
IA Mixed Investment 20-60% Shares was the second best-selling peer group after capturing £258m; this is one of the more cautious multi-asset sectors, reflecting subdued investor sentiment. IA Mixed Investment 40-85% Shares was in third place with net inflows of £239m.
Lowcock said: “The rise in popularity of mixed asset funds continues as investors prefer to delegate decision making to professional managers.
“UK equities remain the least popular asset class among investors and continue to see outflows. Investors are still avoiding domestic equities and are likely to continue to do so especially during periods of market volatility when investors’ appetite for risk is likely to be lower.”
Laith Khalaf, senior analyst at Hargreaves Lansdown, appears confident about global market growth despite investor fears.
“There is always something on the macroeconomic stage to worry about, and right now it’s the escalating trade spat between the US and China,” he explained.
“However more broadly, economic conditions remain benign, as monetary policy is still accommodative and global growth is expected to pick up this year. This backdrop should be supportive of company profitability and hence equity market prices, though of course in the short-term sentiment will play its part too.”