AJ Bell Says Industry Retail Funds May Hit Record £51bn

The UK’s Investment Association (IA) has reported that retail investors put £5.3 billion into funds in August – a record amount for that month.

Salford investment platform AJ Bell said that means 2021 is on course to be the biggest year on record for retail fund sales.

“So far sales have averaged £4.3 billion a month, which would take annual sales to over £51 billion if flows continue apace …” said AJ Bell.

The IA said tracker fund sales remained steady at £1.2 billion, while responsible investment funds saw inflows of £1.3 billion, the seventh month in 2021 where inflows have exceeded £1 billion.

Global was again the best-selling IA sector for the sixth time this year with net retail sales of £1.04 billion in August.

However, UK equity funds experienced outflows of £445 million, compared to the inflows of £259 million in July.

North America funds experienced net retail inflows of £122 million, compared with inflows of £19 million in July, and Japan funds experienced inflows of £80 million, compared to inflows of £5 million in July.

AJ Bell head of investment analysis Laith Khalaf said: “2021 is on course to be a record-breaking year for retail fund sales and is set to just beat the £49 billion raised in 2017 on current trends.

“The summer is traditionally a quiet time for markets, but retail investors didn’t pause for breath, instead ploughing £5.3 billion into funds in August – a record for that month.

“There is still a substantial portion of the year left to go, and fund sales could fizzle out, particularly if markets take a tumble.

“But even if it fails to break records, 2021 will still be a very big year for flows into retail investment funds.

“Funds are proving popular because interest rates on cash are so low and yet many people managed to save up a healthy amount of money over repeated lockdowns.

“The threat of inflation also looms over the economy and private investors can buy some long-term protection from price rises by investing in equities.

“Tax rises are coming too, which encourages savers to invest money in tax shelters like ISAs and SIPPs, again boosting fund sales.

“It also helps that markets have kept on melting up, particularly in the US, and FOMO is likely behind some investment decisions.

“We shouldn’t ignore the role played by responsible investment funds too.

“ESG investing is still a minority sport, but it has accounted for over a quarter of total fund sales so far this year.

“It’s likely that environmental concerns are driving flows into this long-ignored sector, along with a prodigious amount of marketing from the funds industry.

“Right now, climate change is the sizzle that is selling the ESG investing sausage.

“The sun isn’t shining on all areas of the funds market though, and the UK Equity sector continues to be a bête noire for investors, seeing £445 million of outflows in August.

“Investors are instead being lured to the bright lights of the global fund sector, where performance has been strong for a long time, driven by the upward crunch of the US tech sector.

“That trend has turned in the last month through, as some of the big US tech names have sold off, thanks to rising expectations of tighter monetary policy, and the potential for a greater regulatory burden falling on the likes of Facebook and Google.

“Longer term Facebook investors won’t be too miffed by the double digit fall share price fall in the last month though, shares are still 25% up so far this year, and up 150% over the last five years.

“The potential for inflation and rising interest rates will be the key themes that preoccupy investors in the final quarter of the year.

“The threat of tighter monetary policy caused a very weak month for bond fund sales in August, which were 50% down on the average for this year so far.

“In a clear example of the waterbed effect, there was a simultaneous spike in flows into money market funds.

“These funds saw £1.6 billion of inflows in August, which is more than they have taken in some entire years.

“The recondite nature of these funds suggests this is almost certainly multi-asset investors looking for a low volatility home for their money which isn’t bonds.

“These money market funds aren’t going to be delivering great returns with interest rates so low, particularly after charges, but they do offer investors the chance to keep some powder dry for buying opportunities as we head into an uncertain winter.”