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Nervous investors keep shunning UK shares for bonds

Investors have continued to shift away from funds investing in UK shares, searching for perceived safety in fixed income markets.

 
Nervous investors keep shunning UK shares for bonds
 

Investors continued to shun UK equities in favour of fixed income during October, according to figures from fund manager trade body the Investment Association (IA).

UK Equity Income was the least popular IA sector during the month with outflows of £272 million. Investors also withdrew £272 million from UK All Companies funds – marking the sixth month of outflows for UK equities as a whole.

Laith Khalaf, a senior analyst at fund broker Hargreaves Lansdown, put this down to the political and economic uncertainty that has been created by the UK’s plans to exit the European Union.

‘Investors are ploughing record amounts into investment funds, but at the same time there is an exodus from UK equities, with over £2 billion withdrawn from these funds so far this year. The root of this is no doubt the current cocktail of political and economic uncertainty enveloping the UK, combined with a stock market which is perceived to be propped up by a weak currency and loose monetary policy,’ he explained.

In contrast, fixed income was the best-selling asset class for the fifth consecutive month, attracting inflows of more than £2 billion. This compares to an inflow of £644 million into equity funds.

Strategic bond featured as the most popular sector during October, with inflows of £1.6 billion. Target absolute return funds, which aim to achieve positive returns with less volatility than the market, were a distant second with sales of £400 million.

Khalaf finds the significant inflows into bond funds surprising, given that the potential for higher interest rates presents a headwind for the asset class.

‘There looks to be little value in the bond world at the moment, but in times of uncertainty money does flow towards fixed income securities, seemingly at any price,’ he added.

Total inflows across IA sectors totalled £5 billion in October, which represents a substantial increase on the £873 million that was recorded over the same period a year ago.

Chris Cummings, chief executive of the IA, said: ‘2017’s record breaking run continued in October as monthly net retail sales were again in excess of £5 billion.'

'Industry funds under management also increased by almost £30 billion through the month which means that, at the end of October our members were responsible for £1.2 trillion of UK investor savings and investments,' he added.

7 comments so far. Why not have your say?

Law Man

Dec 07, 2017 at 16:41

This is understandable. There is a real risk of a bear market in 2018-19, particularly in the UK stock market.

As such a flight to safety is understandable.

However, bonds generally may not be 'safe' given the low rates etc.

As such the only comparatively safe asset is short duration bonds e.g. the IS15 ETF.

For myself, I maintain my allocation to equities, but watch it like a hawk: better to sell out and avoid a 20-50% loss. As always, the problem is - when.

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Nick-

Dec 07, 2017 at 17:51

All doom and gloom then.

What is the main reason for this negative predicament of terrible fate waiting for all of us next year, is it due to Brexit being on the horizon?

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King Lodos

Dec 07, 2017 at 20:21

I think the greatest headwind for asset prices is likely to be the winding down of monetary stimulus .. That's what's driven stocks and bonds to some of the highest valuations in history .. It's unlikely the withdrawal won't be painful – if it actually happens.

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Adastra100

Dec 08, 2017 at 08:34

Am I being complacent about a prospective correction and still holding primarily equities? I am a buy and hold investor, retired and now in my 70s. Since 2008/9 I have been drawing the natural dividend off a £400k ISA which is mainly shares bought over the last 25 years. At today's prices current income yield 5%-6%. I hold the odd bad apple Provident being the most recent but the 3/4 others were the results of 2008 bank problems. I have enough pension income to cover day to day expenditure so my risk tolerance is quite high. I tend to evaluate the impact of any potential corrections against the original capital invested and not the current value. Is that realistic?

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Micawber

Dec 08, 2017 at 09:17

Adastra: if you're a buy and holder in it primarily for the income then surely the main criterion for success is that the income continues to grow at more than the rate of inflation irrespective of wild fluctuations in capital value however wild..... Otherwise, yes it's unrealistic to look at the original capital value in isolation, I'd say.

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Adastra100

Dec 08, 2017 at 12:27

Micawber:Thanks and point taken. As you say, one reason is because of inflation and so I took a closer look. Based on the average annual CPI figures since 2008 I calculated that the 10 year average 2008/17 CPI to be 2.4%. Using that figure I calculated that my average income growth from 2008, just before dividends were rebased due to the recession, was just under 9% so I felt happy with that. Average capital growth over the 10 years, ie total growth less the natural dividend I was drawing down, was around 6% also better than CPI. Thus subtracting the final CPI based sum from the current 2017 portfolio valuation gives me a surplus figure. If I take that figure as the contingency in my portfolio before I start to lose money on my original investment, would that be more realistic? In my personal case that would show that I could take a correction of around 26% in my personal portfolio before losing initial capital adjusted for 10 years of CPI inflation.

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Hank Elvis Dobbs (texan)

Dec 09, 2017 at 13:36

crazy fools

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