Retail investors withdraw £7.1 billion from investment funds in one quarter

Laith Khalaf
5 May 2022

•    Retail investors withdrew £7.1 billion from investment funds in the first quarter, according to data released by the Investment Association today
•    Bond funds saw £6 billion of net outflows in the quarter
•    Rising interest rates will continue to put pressure on bond fund sales
•    Mixed asset funds are holding their ground

Laith Khalaf, head of investment analysis at AJ Bell, comments:

“Investors ran for the hills in the first quarter of this year, withdrawing over £7 billion from investment funds in just three months. Outflows accelerated sharply across the quarter too, rising from £1.2 billion in January to £3.4 billion in March, which is a worrying trend. The Ukraine crisis is clearly a major factor in triggering an investor flight from risk, but rampant inflation and rising interest rates are also playing leading roles, causing investors to sell down bonds as well as equities.

“Indeed the outflows from equities look modest compared with the withdrawals being registered by bond funds. Over the course of the first quarter, investors withdrew £1.9 billion from equity funds, but £6 billion from bond funds. Fixed income stocks are today yielding more than they have for some considerable time with the US ten year government bond trading on a yield of just under 3%. But 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. 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.

“Amidst the large fund withdrawals seen in the first quarter, mixed asset funds held their ground, registering a net inflow of £582 million. This figure is lower than usual, but at least still in positive territory. Flows into mixed asset funds tend to be less affected by sentiment than other areas, because a lot of regular pension contributions and advised investments find their way into these sectors. Investors may also be craving the diversification provided by mixed asset funds. In a world where it’s extremely difficult to pick out which assets are going to prosper, having irons in a lot of fires makes a good deal of sense.”

Laith Khalaf
Head of Investment Analysis

Laith Khalaf started his career in 2001, after studying philosophy at Cambridge University. He’s worked in a variety of roles across pensions and investments, covering both the DIY and the advised sides of the business. In 2007, he began to focus on research and analysis, and has since become a leading industry commentator, as well as a regular contributor to the financial pages of the national press. He’s a frequent guest on TV and radio, and for several years provided daily business bulletins on LBC.

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