Investors Favour Equity Funds

Equity funds outsold bonds for the eighth consecutive month in November, with sales equalling nearly £1billion. But the majority of investors’ cash still lies in fixed income

Emma Wall 10 January, 2014 | 10:57AM
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Investors poured cash into equity funds in November – making it the eighth consecutive month as the best-selling asset class. Sales of equity funds equalled £935 million, making up a considerable proportion of the total £1.6 billion that flowed into all funds that month.

According to the latest figures from the Investment Management Association, investors took £112 million out of bond funds in November, compared to inflows of £62 million the previous month.

This marks a stark contrast to investor sentiment just 18 months ago. Until September 2012, bonds topped the best-selling asset class in the UK, with investors globally depositing $1.3 trillion into fixed income during the downturn. And for all the talk of a great rotation - the concept that investors are moving up the risk scale from bonds to stocks in order to secure a higher yield – fixed income still holds the majority of that cash.

Speaking at an investment conference last month T.Rowe Price’s Mike Gitlin said that the $100 billion that had flowed out of fixed income over the past year was simply the tip of the iceberg.

"Equities have seen some of the money pulled out of bonds this year, but not all. Investors are still cautious of the stock market. I'd say it's been a 'good rotation', but not a great one. After two bear markets in as many decades investors are wary of equities.”

Jason Chapman, managing director at discount broker Willis Owen, said that investors showing market confidence by choosing to invest into equities.

“In particular, sales of UK equities did well heading into winter, showing that people are now starting to back the UK’s recovery over global prospects,” he said.

UK equity funds took £409 million in November – the most popular region among investors. European equities saw inflows of £240 million, while North American equity funds, which have posted considerable returns over the past 12 months saw outflows of £63 million.

Mixed asset funds took £358 million of UK investors’ cash in November, and property funds saw inflows of £212 million.

Net retail sales fell slightly in November, down from £1.9 billion the previous month to £1.6 billion, though cumulative sales by November 2013 totalled £18.1 billion, compared with £13.0 billion in the same period in 2012.

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Emma Wall  is former Senior International Editor for Morningstar

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