UK retail investors rushed to take money out of investment funds this year, with net outflows in the first three months reaching £7.1bn, the highest level since the fourth quarter of 2018.
The pace of withdrawal accelerated rapidly over the three-month period as worries about inflation and rising interest rates were heightened by the impact of war in Ukraine, data showed Thursday. by the Investment Association, the funds industry group.
While the data covers a period that ended more than a month ago, analysts expect investors to remain nervous. Inflation fears have only grown in light of the dispute, prompting the US Federal Reserve and Bank of England to raise official interest rates this week. Meanwhile, the fighting in Ukraine shows no sign of abating, wreaking human and economic devastation and disrupting global trade, especially that of grain.
“If inflation remains high, further rate hikes seem inevitable,” said Wealth Club analyst Nicholas Hyett. “Higher rates are bad news for real estate, stocks, stocks and bonds, especially if they’re associated with an economic downturn. But rising inflation means money isn’t no longer a safe haven. Investors, like rate makers, could be left looking for the least-worst of options.”
According to the Investment Association, retail fund outflow in March was a net £3.4bn – the highest monthly figure since the UK’s first pandemic lockdown in March 2020, when £10bn have been removed. The March 2022 total topped February’s £2.5bn, which itself topped the £1.1bn recorded in January.
The withdrawals were driven by particularly large movements in fixed income funds, which led to outflows of £3.4bn in March. This took the quarterly figure to £6bn, the largest quarterly fixed income outflow on record.
Retail withdrawals from equity funds reached £3.8bn for the three months, including £1.2bn for March, with a net outflow of £505m from European funds, reflecting the exposure of the region to the Ukrainian conflict. This made the net outflow from equity funds the largest of any quarter in nearly three years.
“Investors remained cautious in March in light of monetary tightening and Russia’s invasion of Ukraine,” said Chris Cummings, chief executive of the Investment Association. “Although Russia launched its invasion of Ukraine in February, the economic ramifications of the conflict became clearer in March.”
However, the outflows were partly offset by inflows into diversified funds, which are widely seen as safer havens, and sustainable investment funds as savers wanted to act before the end of the UK fiscal year. April 5 to use Isa allowances.
Cummings said managers have seen “many investors rush to use their Isa allocation and seek potentially safer havens in diversified funds, with multi-asset strategies in particular benefiting.”
Laith Khalaf, head of investment analytics at the AJ Bell platform, predicted the bond drain highlighted in the data would persist.
“Bond investors will be wary of the continued pressure from rising interest rates and quantitative easing in bond prices, and will think that in the meantime they can protect some capital and secure a higher return later. “, did he declare. mentioned.
He added: “At some point yields will become tempting enough to attract investors to bonds, but until they are able to see past a period of rising interest rates, bond fund sales will likely remain below cosh.”
Emma Wall, head of investment analysis at Hargreaves Lansdown platform, said: “The market reaction to the devastation in Eastern Europe has been extreme volatility, and while many investors have taken advantage to take speculative bets, many chose to take their money off the table and turn to perceived safe havens like silver and gold.
“[Our] clients have also turned to multi-asset funds that prioritize capital preservation, outsourcing asset allocation in the face of market uncertainty.