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Investors Ditch Equity Income After Woodford Suspension

Latest Investment Association figures show investors are seeking safety in fixed income funds, with £2.4 billion invested in June

Holly Black 1 August, 2019 | 11:07AM

Pound notes and coins

Skittish investors pulled almost half a billion pounds out of equity income funds in June as they sought safety in fixed income.

Latest figures from trade body the Investment Association show that £2.4 billion was invested in fixed income funds in the month, while trackers attracted a record £1.6 million.

Strategic and Corporate Bond funds were the best-sellers in June as income-seeking investors looked for options to protect them from the volatility of stock markets. With the high-profile suspension of the Woodford Equity Income fund on June 4 it was no surprise that UK Equity Income funds were firmly out of favour, with outflows of £287 million. Investors also continued to abandon Targeted Absolute Return funds, which suffered the greatest outflows in the month, at £501 million.

Jason Hollands, managing director at Tilney Bestinvest, says the figures show a marked shift away from riskier assets, despite a stellar first half of the year for global stock markets. It is surprising that fixed income options are so popular when so many are offering incredibly low or even negative yields in real-terms, he points out.

With the resignation of Theresa May taking place in the month and lingering uncertainty over Brexit, UK funds remained out of favour. Some £744 million was withdrawn from UK-focused funds in June, as the Conservative leadership race got underway.

European-focused funds suffered their fourteenth consecutive months of outflows too, with £124 million withdraw in June. “This is unsurprising given the weak state of the German economy and the relative fragility of the European banking sector,” says Hollands. “With already very accommodative monetary policy in place, the eurozone looks very ill-equipped to handle a potential downturn and is particularly

“European equity funds also continued to haemorrhage assets, with outflows of £124 million in the month. Net sales of European funds have been negative for 14 months on the trot,” adds Hollands. "This is likely due to a weaker German economy and is particularly vulnerable to any escalation in the trade war, given its high exposure to exports.”

Tracker Funds in Favour

With so much volatility and uncertainty, many investors have clearly decided their best bet is simply to track the market. Tracker funds attracted £1.6 billion of assets in the month and now account for 16.7% of total assets under management in open-ended funds.

The negative picture painted by the Investment Association’s figures echoes Morningstar data, which last week revealed that UK investors have pulled an eye-watering £26.7 billion out of funds over the past year.

"Uncertainty over Brexit following the resignation of Theresa May means that international investors had no strong reason to own the UK. Whilst Brexit itself was no longer dominating headlines the risks and uncertainty have not gone away, and we are yet to see when they will," says Adrian Lowcock, head of personal investing at investment platform Willis Owen.

Former behemoth Standard Life Global Absolute Return Strategies has seen its assets fall from a peak of £26 billion to £8 billion over a relatively short period, after a poor run of performance and a number of personnel changes in the team. It is not the only fund in its sector to have disappointed; number-crunching by AJ Bell has found many of these so-called safe haven funds have failed to meet their performance targets. As a result, investors have pulled more than £5.4 billion out of the sector over the past year.

Laura Suter, personal finance analyst at AJ Bell, says: “Absolute Return funds saw yet another £500 million pulled by investors during the month. Many of the funds in the sector seeing the largest outflows have failed to deliver above-inflations returns and investors are voting with their feet and heading for the exit.”  

 

 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
SLI Global Absolute Ret Strat Ret Acc75.01 GBP0.08

About Author

Holly Black  is Senior Editor, Morningstar.co.uk

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