DIY Investors rush to global funds as confidence returns

Investors sold out in their droves in March when the world went into lockdown due to Covid-19; the fund sector alone suffered record monthly outflows of £10 billion.

Now it appears that confidence has returned and bargain hunters are returning to funds in pursuit of over-sold assets.

The Investment Association’s (IA) latest research shows retail investors poured £11.2 billion into funds in the second quarter of the year – more than the £9.8 billion inflows during the whole of 2019; UK stocks, however, remain out of favour.

DIY investing platforms reported accounts being opened in record numbers during lockdown as more and more people sought to take control of their finances; younger investors have been conspicuously active.

Global funds topped sales as investors seeming sought to avoid being overexposed to any one country given the remaining uncertainty caused by the pandemic.

The fixed income sector fared the worst in March, with £7.4 billion of net outflows; however, it came charging back as the best-selling asset class in June, with £2.1 billion of net inflows, as investors sought the security of guaranteed returns.

Global bonds and corporate bonds saw sales of £868 million and £732 million respectively.

Global was the best-selling region for equities in June with £503 million of inflows; £2.8 billion was invested in global equity funds in the first six months of the year, despite the sector seeing almost £700 million of outflows in March.

North America equity funds were the second-most popular region in June, with £328 million of inflows; however investors still lacked confidence in the UK, pulling £1.1 billion from UK equity funds in June, and £662 million from UK all-companies funds – the worst performing sector in the IA’s analysis.

In explaining investors reticence, key concerns were identified as the outcome of Brexit, the potential for a second wave of coronavirus and the difficulty of finding income as swathes of companies cut their dividends; savers have been forced to take a broader view and allocate to diversified global strategies.

In the second quarter, the IA’s global sector outperformed UK all-companies with returns of more than 5%, its chief executive Chris Cummings said with infection rates now rising globally post-lockdown and US gross domestic product having contracted 32.9% in Q2, the outlook for fund flows for the second half of the year ‘remains uncertain’.