[ad_1]
UK retail investors have rushed to withdraw money from investment funds this year, with net outflows in the first three months hitting £7.1bn, the highest level since the fourth quarter of 2018.
The pace of the withdrawal accelerated rapidly over the three-month period, as concerns about inflation and rising interest rates were compounded by the impact of the Ukraine war, according to data released on Thursday by the Investment Association, the fund industry group.
While the data cover a period that ended over a month ago, analysts expect investors to remain nervous. Inflationary fears have only grown in the light of the conflict, prompting both the US Federal Reserve and the Bank of England to raise official interest rates this week. Meanwhile, the fighting in Ukraine shows no sign of abating, causing human and economic havoc and disrupting global trade, especially in grain.
“If inflation remains high, further rate rises look inevitable,” said Nicholas Hyett, analyst at investment broker Wealth Club. “Higher rates are bad news for property, stocks and shares and bonds, especially if paired with an economic downturn. But rising inflation means cash is no safe haven either. Investors, like rate setters, could be left looking for a least worst option.”
According to the Investment Association, the March outflow of retail funds was net £3.4bn — the highest monthly figure since the UK’s first pandemic lockdown in March 2020, when £10bn was withdrawn. The March 2022 total topped February’s £2.5bn, which itself exceeded the £1.1bn recorded in January.
The withdrawals were led by particularly large moves in fixed income funds, which saw outflows of £3.4bn in March. This took the quarterly figure to £6bn, the highest recorded quarterly fixed income outflow.
Retail withdrawals from equity funds hit £3.8bn for the three months, including £1.2bn for March, with a net outflow of £505mn from European funds, reflecting the region’s exposure to the Ukraine conflict. That made the net outflow from equity funds the biggest for any quarter for almost three years.
“Investors remained cautious in March in light of monetary tightening and Russia’s invasion of Ukraine,” said Chris Cummings, chief executive of the Investment Association. “Although Russia launched its invasion of Ukraine in February, the economic ramifications of the conflict became clearer in March.”
However, the outflows were partly offset by inflows into diversified funds, which are widely seen as safer havens, and into sustainable investment funds, with savers keen to act before the end of the UK tax year on April 5 to make use of Isa allowances.
Cummings said managers saw “many investors rushing to use their Isa allowance and seeking potentially safer havens in diversified funds, with multi-asset strategies benefiting in particular”.
Laith Khalaf, head of investment analysis at platform AJ Bell, predicted that the flight from bonds evidenced in the data would persist.
“Bond investors will be wary of the continued pressure exerted by rising interest rates and quantitative tightening on bond prices, and will be thinking that by waiting it out, they can protect some capital and lock into a higher yield further down the road,” he said.
He added: “At some point yields will become tempting enough to lure investors back into bonds, but until they are able to see past a spell of rising interest rates, bond fund sales are likely to remain under the cosh.”
Emma Wall, head of investment analysis at platform Hargreaves Lansdown, said: “The market reaction to the devastation in eastern Europe was extreme volatility, and while many investors took the opportunity to take speculative bets, many chose to take their money off the table and turn to the perceived safe havens of cash and gold.
“[Our] clients have also turned to multi-asset funds which prioritise capital preservation, outsourcing asset allocation in the face of market uncertainty.”
[ad_2]
Source link
