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The Actuary The magazine of the Institute & Faculty of Actuaries

Political uncertainty sees investor ‘exodus’ from UK equity funds

Retail investors continued to withdraw from UK equity funds in October, with political uncertainty thought to be fuelling a dash towards fixed income securities.

Investors urged to keep diversified portfolio amid Brexit talks ©iStock

Data from the Investment Association shows that fixed income was the best-selling asset class, with net retail sales of more than £2bn, while the Sterling Strategic Bond was the best-selling sector with sales of £1.6bn.

However, investors pulled £444m from UK equities in October, marking six consecutive months of outflows and approximately £2bn withdrawn from these funds so far this year.

This comes amid a backdrop of record net retail sales, which were in excess of £5bn in October, while the industry funds under management increased by almost £30bn.

“Investors are ploughing record amounts into investment funds, but at the same time there is an exodus from UK equities,” Hargreaves Lansdown senior analyst, Laith Khalaf, said.

“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,”

“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.”

Funds classified as ‘other’ were the second best selling asset class after fixed income, with net sales of £1.1bn, and include the Targeted Absolute Return, Volatility Managed, Protected and Unclassified sectors.

The data shows that mixed asset funds were the third most popular for UK investors, with around £1bn a month being invested in the asset class since February this year.

Japanese funds were the best selling equity funds by region, with net retail sales of £234m, followed by European and Asian, with sales of £220m and £140m respectively.

However, Khalaf warned that with the effect Brexit negotiations could have on asset returns still uncertain, it makes sense to maintain a diversified portfolio, with some UK equities.

“Investors who shun the UK are not only losing diversification, they are missing out on exposure to some of the best fund managers around,” he added.

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