UK equity income funds hammered by withdrawals

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Traditionally popular UK equity income funds were hit by heavy withdrawals during October, as investors continued to be spooked by the ongoing Brexit saga.

Figures released today by fund trade body the Investment Association revealed UK Equity Income was the worst selling sector during the month, with a net retail outflow of £272million, as private investors pulled out more cash than they put in.

The sector will not have been helped by its best known offering, the £8billion Woodford Equity Income fund run by star manager Neil Woodford continuing a bad run.

UK equity income funds were hit by heavy withdrawals during October.

UK equity income funds were hit by heavy withdrawals during October.

Also shedding money for the sixth month in a row was the UK All Companies sector, which experienced a net retail outflow of £224million. 

The continued pattern of Britain’s private investors selling out of company shares in their home market went against the grain, with fund sales buoyant overall in October at £5billion.

Once again, despite an impending rate rise and above target inflation, bond funds – officially classified as fixed income – were the best-seller during the month, as more than £2billion more went in that out.

Total funds under management for the industry increased by £29billion over the course of the month, bringing the total to £1.194trillion.

In terms of geographic breakdown, Japan topped the charts followed closely by Europe, with the UK bottom by some distance.

Figures from the  Investment Association show how Japan was the biggest selling region

Figures from the  Investment Association show how Japan was the biggest selling region

Figures from the  Investment Association show how Japan was the biggest selling region

The fact that investors are continuing to plough their cash into bonds highlights their nervousness, said Laith Khalaf, senior analyst at Hargreaves Lansdown.

‘Investors are ploughing record amounts into investment funds, but at the same time there is an exodus from UK equities, with over £2billion withdrawn from these funds so far this year,’ he said.

In times of uncertainty money does flow towards fixed income securities, seemingly at any price

Laith Khalaf, Hargreaves Lansdown 

‘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.

‘The main beneficiary of the malaise towards UK equities has been the fixed income sectors, which have continued to attract large sums of money despite the prospect of rising interest rates presenting a headwind for bond funds.’ 

‘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,’ Khalaf added. 

Strategic bond funds continued to bring in the most investor money, according to the IA

Strategic bond funds continued to bring in the most investor money, according to the IA

Strategic bond funds continued to bring in the most investor money, according to the IA

‘For the fifth month in a row, fixed income was the best-selling asset class with net retail sales of more than £2 billion,’ said Alastair Wainwright, fund market specialist for The Investment Association.

‘For the third month in a row, Sterling Strategic Bond was the most popular sector with retail investors as they allocated £1.6 billion in October. Notably, the Sterling Strategic Bond has featured in the five best-selling sectors each month since December 2016. ‘

‘Mixed Asset funds continue to be popular with UK investors, with around £1 billion a month being invested in this asset class since February this year. The last time mixed asset experienced a monthly outflow was January 2016,’ he added.

Star fund manager Neil Woodford who runs an eponymous £8bn UK fund has suffered recently

Star fund manager Neil Woodford who runs an eponymous £8bn UK fund has suffered recently

Star fund manager Neil Woodford who runs an eponymous £8bn UK fund has suffered recently

It is not just Brexit worrying investors in the UK, says Tilney Group managing director, Jason Hollands, he believes that the prospect of the Conservative government collapsing and Labour taking over is also concerning them 

He said: ‘This is a pattern that has played out throughout 2017. While much of this can be pinned on Brexit related uncertainties and the headwinds for UK consumers created by inflation running ahead of wage growth, anecdotally we see wider political concerns being a factor as investors worry about a potential hard left Corbyn and McDonnell administration.’

‘These concerns will have been amplified significantly this week with the impasse over the future of the Irish border potentially stalling the commencement of UK/EU trade talks and renewed infighting within the Conservative Party around competing visions of post-Brexit Britain.’

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