Investors Sell UK Equities for Property

After eight consecutive months as the most popular fund sector UK equity income has been knocked off the top spot by property funds - as investors reduce UK and US exposure

Emma Wall 26 March, 2015 | 4:14PM
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Property funds topped the fund charts in February according to the Investment Association, raking in £304 million, and knocking UK Equity Income off the top spot for the first time in eight months. The least popular sector was UK All Companies which saw outflows of £167 million.

Investors sold off exposure in the UK, North America and Asia in favour of up-and-coming markets Europe and Japan – regions that have been tipped to outperform in 2015.  

Although property funds may have overtaken sales in UK equity income, investors still deposited £248 million into the home-grown dividend funds making it the second most popular sector. Private investors have poured £6.6 billion into the sector over the past year, boosted considerably by what has become known as “the Woodford effect” – as star UK equity income manager Neil Woodford launched his eponymous fund last summer, so far attracting £5 billion.

The UK Equity Income sector may have proved popular but equity funds as an asset class saw outflows of £59 million in February – dragged down by investors selling off exposure in Asia Pacific excluding Japan, North America, UK All Companies and UK Smaller Companies.

This trend encouraging as it shows private investors are willing to reduce exposure in regions that have previously outperformed, such as the US, crystallise gains, take profits and reinvest in growth areas.

Property sales worryingly buck this trend however – commercial property was one the best performing asset classes of 2014 returning almost 20% to investors, and Morningstar investment strategist Andy Brunner warned that it was unlikely this would be repeated this year. For the investor with a well-diversified portfolio it may provide an income boost, but investors should be wary of over-allocating to an illiquid asset.

Mixed-asset funds proved the second most popular asset class in February with sales of £137 million as investors looked to the professionals to asset allocate on their behalf.

According to data from Morningstar Direct over the past month the most popular fund house was M&G – whose most popular funds invest in fixed income – taking inflows of £562 million, while the least popular house was Standard Life who saw outflows of £211 million.

UK Equity Income Still Top for ISA Investors

It was better the devil you know for tax-efficient investors who continued to favour UK Equity Income funds. Examining sales across the top five fund platforms, UK Equity Income took £68 million in February followed by Property and then Europe excluding UK.

As for how investors where filling up their ISA wrappers, increasingly platforms were favoured over direct fund group ISAs.

Passives Continue to Gain Investors’ Attention

Tracker funds took at total of £358 million in February according to the IA, taking their share of the fund industry to 11.3% - up from 9.9% a year earlier. 

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Emma Wall  is former Senior International Editor for Morningstar

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