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Bond bonanza powers record fund sales in 2017

Fund sales broke records in both the UK and Europe last year, but investors were wary of stock market highs, preferring bond funds.

Bond bonanza powers record fund sales in 2017

Fund sales hit a record high in the UK and Europe last year, but investors proved wary of stock market record highs, with bonds emerging as the best-selling asset class.

The Investment Association, the trade body for UK fund managers, reported net inflows of £63 billion for 2017, a record high, while the fund market in Europe was equally buoyant.

Figures from investment data group Morningstar show net inflows of €682.8 billion (£601.2 billion) for the year, also an all-time high.

But in both the UK and Europe, bond funds dominated the sales charts. Investment Association figures show net sales of £14.3 billion for bond funds, an all-time high, while the €288 billion poured into fixed income funds across Europe was also a record.

'Multi-asset' funds, which can investment in shares, bonds, property and other assets, were the next popular, attracting net sales of £13.5 billion in the UK and €134.6 billion across Europe.

Rallying stock markets helped sales of equity funds reverse 2016's outflows, with net inflows of £10.5 billion in the UK and €106.9 billion in Europe, but that wasn't enough to match the record sales for bond funds.

UK equity funds bore the brunt of investor bearishness, with outflows of £2.6 billion for the year, according to the Investment Association.

'The UK remains a notable pariah on the global stage, with money pouring out of UK equity funds throughout the back end of last year,' said Laith Khalaf, senior analyst at Hargreaves Lansdown.

'Brexit and a weak government do of course give pause for thought, however the phobia towards the UK looks overdone, and this presents a contrarian buying opportunity.'

The surge in bond fund sales came despite a middling year for fixed income, and ahead of the sell-off in the government bond markets so far this year.

'The precise reasons for this phenomenon still remain elusive,' said Khalaf. 'Some cash savers may have moved up the risk spectrum in search of a better rate of return, other investors may have sought diversification from strongly rising equity markets.'

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