Low rates and cash piles drive £4.8bn investment fund inflows

Laura Suter
2 September 2021

Laura Suter, head of personal finance at AJ Bell, comments on the latest Investment Association figures for July:

“Investors once again piled into funds in July, with £4.8bn of net inflows in the month, almost three times the amount that we saw in July last year. It means that so far this year investors have put £28.9bn into funds, with no signs of slowing down. As interest rates on cash accounts remain historically low and many people sitting on a healthy cushion of savings from the pandemic, we’d expect to see more and more money funnelled into investments this year. Some had expected a drop-off in investments as summer hit and there was more ability to go out and spend your cash, but that doesn’t seem to have materialised.

“Global funds have been the big winner, netting another £862m of inflows in July, taking the sector to £7.7bn of inflows so far this year. Investors have been rewarded with a near 11% return so far this year from the sector, compared to a 13% return from the MSCI World index.

“But not every fund manager is enjoying a surge in investments: the UK Equity Income sector clocked up its 14th straight month of outflows in July, with another £46m leaving funds in the sector. During those 14 months investors have pulled almost £5bn from UK Equity Income funds. It would appear the scars of the dividend drought in UK equity markets last year are still fresh for investors, as they’ve failed to return to the market despite dividends recovering. Those investors have missed out on decent performance during that time, with the sector returning 27.3% in comparison to the FTSE 100’s 18.3% return*.

“Not to be outdone, property investment funds have chalked up an even worse time, and the sector is now just two months shy of having three years of straight monthly outflows. While the residential property market has been going gangbusters during the pandemic, that hasn’t translated into people’s investment portfolios. The lock-ups in the funds, concerns about liquidity and subsequent closing of some funds means it will be a long time before we see inflows to the sector. On top of that, FCA plans to potentially bring in a notice period for the sector could well be the final nail in the coffin, with the majority of investors saying it would put them off investing**.”


* Performance figures are for 1 June 2020 to 31st July 2021, when there were outflows from the sector.
** Online survey of 1,951 DIY investors using the AJ Bell Youinvest platform; 406 already held property funds, 1545 did not.

 

Laura Suter
Head of Personal Finance

Laura Suter is head of personal finance at AJ Bell. She is a multi-award winning former financial journalist, having specialised in investments. Laura joined AJ Bell from the Daily Telegraph, where she was investment editor. She has previously worked for adviser publications Money Marketing and Money Management, and has worked for an investment publication in New York. She has a degree in Journalism Studies from University of Sheffield.

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