Asset managers saw net retail sales surge to around £15bn last year, according to the latest data from the Investment Association trade body, after inflows of just £7.7bn in 2018 – one of the worst years on record.
Sales were boosted by an extraordinary £18.1bn inflow into tracker funds last year, highlighting the increasing importance of passive strategies to investors.
After a challenging start to the year with little clarity over the Federal Reserve’s appetite for further interest rate hikes, 2019 ended having seen three rate cuts. It was further boosted by signs of a thaw between the US and China over trade tensions and the return of a significant majority for the Conservative party following the snap general election in December.
Despite the late rally, risk appetite appeared to have been hampered last year with equity outflows of £2.4bn while £11.6bn of investor cash poured into fixed income strategies and £6.5bn found its way into mixed-asset funds.
Source: Investment Association
As well as equities, property funds saw net outflows last year as investors withdrew £1.2bn amid concerns over liquidity that forced the suspension of M&G Property Portfolio in December.
From a regional equity perspective, investors took the most money out of European strategies last year – taking over as the most unloved area from the UK – as £3.8bn was withdrawn.
The UK had its fourth consecutive year of outflows although they were down sharply from previous years as greater clarity over Brexit emerged. There were just £1.2bn in outflows compared with £4.9bn in 2018. Japanese strategies were the only other region to see outflows with investors redeeming £640m.
Global equity strategies were most favoured last year, although here too investor appetite cooled with inflows of £1.5bn (down from £2.5bn in 2018). There were also inflows in North America strategies, which drew £1.3bn. Asia strategies, meanwhile, saw inflows of £143m.
The best-selling sector of last year among retail investors was IA Sterling Strategic Bond with inflows of £5.4bn. The worst-selling sector was IA Target Absolute Return with outflows of £4.9bn, the first time since 2013 that IA UK All Companies had not been ranked bottom.
The growing importance of passive funds was seen as the funds under management reached £230.1bn or 17.8 per cent of total industry assets – the highest level on record. Over the course of the year, tracker funds received inflows of £18.1bn, their best-ever year.
According to the IA, half of all net retail flows to tracker funds went to equity strategies.
Elsewhere, a greater shift towards ESG (environmental, social & governance) issues became apparent as responsible investments recorded £3.2bn in net retail sales. Responsible investments now represent £27.4bn or 2.1 per cent of the industry total.
“Amid significant political uncertainty and challenging economic headwinds globally, the amount managed in funds on behalf of UK savers grew to new heights of £1.3trn,” said Chris Cummings, chief executive of the Investment Association.
"As global stock markets climbed, many savers swung heavily behind tracker funds in 2019."
A significant proportion of last year’s inflows came during the final month of the year with net retail sales of £3.6bn, as UK investors were buoyed by the general election result.
A landslide victory for Boris Johnson’s Conservative party brought greater certainty for the direction of Brexit at last and the rejection of left-wing policies espoused by Labour party leader Jeremy Corbyn.
Cummings said: “Funds markets were buoyed in December by the ‘Boris bounce’ with £3.6bn invested into funds.
“Galvanised by the general election result, savers poured £1.3bn into UK equity funds, reaching inflows last seen in 2013."
He added: “This new-found confidence was felt across UK plc, with inflows into funds investing in large-to-small cap UK companies.”
Source: Investment Association
Indeed, the IA UK All Companies sector was the best-selling over the month with retail sales of £772.4m last month, while £278.6m found its way into UK smaller companies strategies and a further £228.8m was invested in UK equity income funds.
Another top-selling sector was IA Sterling Strategic Bond, which had inflows of £508.7m, while £409.9m was invested in IA Volatility Managed funds.
The worst-selling sectors were IA Targeted Absolute Return and IA UK Direct Property, which sustained outflows of £410m and £262.6m respectively.
Equity funds saw slightly more inflows than fixed income strategies in December with net inflows of £1.8bn against £1.1bn for the latter.