The Investment Association reports that January was the worst month for investment funds since the financial crisis, experiencing the biggest net outflows from retail investors since October 2008. Then £493 million was withdrawn, just marginally less than the £463 of retail outflows seen last month.
The fund category greatest hit was bonds, especially strategic bond funds, followed by mixed asset funds. Ironically, equity funds only saw modest outflows.
Senior Analyst at Hargreaves Lansdown Laith Khalaf said: “January was a dire month for the investment funds industry, but it wasn’t the temperamental equity sectors which let the side down. Instead it was the steady eddy asset classes which saw the heaviest withdrawals, and while these sectors normally provide some ballast to the overall figures, this time they ended up rocking the boat even more.
“The last time there was such a big exodus from funds was in October 2008, when financial markets were in total meltdown. This January it seems to have been a nasty coincidence that all main asset classes saw outflows at the same time, which resulted in such a negative overall figure. Even the property sector which has been so buoyant of late saw a small outflow. We shouldn’t read too much into one month’s figures, particularly in January when tax bills have to be paid and money is thin on the ground after the annual Christmas splurge. We will have to wait and see if this is the start of trend or simply a seasonal blip compounded by volatile markets.
“Within equities there were some winners and losers, as investors appeared to allocate money away from the UK and Asia into Europe and the US. Passive funds continue to attract money despite some of the biggest companies in the UK stock market falling foul of the commodity rout, which suggests index trackers are enjoying a secular growth story at the moment.
“There is no shortage of bad news around right now, but if you invest when everything is smelling of roses, chances are you are paying a premium for the comfort of doing so. Whether it’s the EU referendum, a Chinese slowdown, a bond bubble or the Greek debt crisis, there’s usually something to worry about in financial markets. Investors who are concerned about market volatility should consider meeting their savings needs by investing monthly, which smooths the ups and downs of the stock market.”