Investors have ditched equity funds over the summer in favour of multi asset and fixed income strategies, according to the latest research from the Investment Association (IA).
Overall, net retail sales were positive in July – the most recent data for flows – with an additional £977m invested into UK-authorised funds, as industry funds under management totalled £1.3trn.
However, Chris Cummings, chief executive of the IA, noted that amid trade tensions, the story remains one of equity fund outflows and waning risk appetite, with fixed income and mixed asset funds attracting strong inflows in July.
“Within the equity sectors, the UK is still firmly out of favour amid Brexit uncertainty, with outflows totalling £3.5bn since the beginning of the year,” he explained.
Table of inflows and outflows in July
Source: Investment Association
Mark Dampier, research director at Hargreaves Lansdown, said the recent figures were unsurprising, given more negative sentiment towards financial markets globally.
Events such as a potential trade war between the US and the rest of the world, blow-ups in some emerging market countries, and – closer to home – the ongoing g nature of Brexit negotiations have all weighed on investor sentiment.
“It is all these things plus the fact that the US market has had a fantastic run – particularly this year – and then you have the emerging market stuff going on with currency worries,” he added.
All this is coupled with a backdrop of a bull market that is the “most hated in my lifetime,” he said, which has seen investors calling the end of the cycle for a number of years. 
However, he said equity fund outflows were not a sign of panic from investors, but of nervousness around the global events.
“After 10 years of strong gains people are nervous as they were in 2012. It is almost a re-run of Grexit [the potential ejection of Greece from the single currency] and all the problems surrounding that, but they were all wrong,” he said.
“There’s always something. In 2015, it was China. It just moves from one worry to another because people want something to worry about [as] the market has been so high.”
Part of the problem, he added, is with media coverage of markets, and in particular greater access to information that the internet has given investors over the last decade.
“You guys in the media put out repetitively bad news all the time. That is all we ever see because bad news seems to sell and good news doesn’t,” Dampier (pictured) said.
“I think people have been scared out of this bull market by the press and media stories. If you think about clicks, I bet you get a lot more coverage if you write a story that says the Dow is going to halve in the next year than if I said it is going to go up 50 per cent.”
He added: “Bad news sells. Is it surprising that investors emotionally after a while, if you hit them over the head long enough, just say ‘maybe I should come out?’”
George Lagarias, senior economist at Mazars Wealth Management, meanwhile, said outflows at this point in the economic cycle were to be expected, but added that there is a lot of good news for investors to point to also.
“Even though we believe we are in the mature phase of the bull market, we don't really have much evidence pointing towards the conclusion that the almost 10-year old rally has reached its end,” he said.
“The financial system is sound, companies continue to improve their earnings and the global economic expansion is persistent, even if in a more desynchronised manner.
“Emerging market volatility is of course disconcerting, but it's difficult to imagine the tumult spilling over to developed markets. Barring a ‘black swan’ event, we feel that we have probably not yet seen the end of the current economic and financial expansion cycles.”
City Asset Management research director James Calder agreed, noting that he has not made any wholesale changes to his asset allocation strategy for the best part of 18 months despite the ongoing concerns.
“We are living with the combined effects of trade wars and so on but at the same time you still have tax cuts, US data is getting better or is not weakening and our general view is that this tends to be short-term background noise,” he said.
Indeed, while the noise persists, he noted that the old cliché that ‘bull markets don’t die of old age’ does remain true and that so far no event has been cataclysmic enough to cause the next recession.
Yet, the further the economic cycle lasts, the more bearish investors become and begin to look to defensive assets, as highlighted by the shift in flows over the summer despite the MSCI World market continuing to perform well year-to-date.
Performance of index over YTD
Source: FE Analytics
Calder said: “We would say to our clients with a five-year time horizon that volatility over the short term is always quite painful but it tends to flatten out as the time expands.”
However, another wrinkle in the data worth considering is who is doing the selling. For example, Calder said if it is independent financial advisers (IFAs), it may show a lack of confidence in their own ability to time the market.
“If it is IFAs it could be that they are rationalising what they are doing and diversifying a bit further, buying one-stop shops rather than having a go at predicting US or Japanese equities,” he noted.
Conversely, it could be fund and portfolio managers themselves, that have discovered information that others in the market have missed.
“If it was the man or woman on the street then there could be a wave of panic out there, but the average retail investor is usually the last person to find out and act upon it,” he concluded.