Bargain hunting investors still avoiding UK equity funds

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Investors returned to markets in force in the second quarter of the year, on the hunt for bargains following market falls earlier this year, according to the latest figures from the Investment Association. A total of £11.2bn was invested in funds in the three months to the end of June, helping to counteract some of the mass outflows seen in March when market volatility was at its peak.

In equity markets investors hedged their bets and invested in global funds, rather than pegging their hopes on one country getting out of the current pandemic in better shape than others. In the first six months of the year investors put £2.8bn into global equity funds, despite the sector seeing almost £700m of outflows in March alone. However, this is still a 20% drop in inflows when compared to the same period last year.

Investors’ view of the UK is not as rosy, with June seeing just over £1bn pulled from UK equity funds, and UK All Companies funds seeing the largest outflows at £662m. Worries about a second wave of the virus in the UK, fears about the nation’s economic outlook and the current drought of income in the market all turned investors away in search of better prospects elsewhere.

Tracker funds returned to favour, after investors had shunned them earlier this year in favour of active managers. During June they saw £2.1bn of inflows, making up the vast majority of inflows in the month. This is likely because active managers have failed to outperform on average in many sectors during 2020’s volatility and market recovery, leaving investors disappointed and switching back to cheaper rivals.

Absolute Return funds have now chalked up £3.5bn of outflows in the first six months of this year alone, with some funds shrinking in size dramatically during that time. Investors have been fleeing the sector for two straight years now, with 24 consecutive months of outflows totalling £11.4bn, as disappointing performance from some of the bemouths in the sector coupled with worries about how well the sector as a whole was performing mean investors have lost faith. The size of the sector, including the effect of performance, has shrunk from being the third largest at £80.7bn two years ago to £53.7bn today – a drop of more than a third.

View the latest Investment Association figures.

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Written by:
Laura Suter

Laura Suter is Personal Finance Analyst 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.