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Investors flee funds at fastest pace since Brexit vote

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Investors flee funds at fastest pace since Brexit vote

UK investors pulled money from funds during 'Red October' at the fastest pace since the month of the Brexit vote, figures from fund manager trade body the Investment Association show.

Retail investors withdrew a net £1.6 billion from funds in October, the biggest outflow since the £3.5 billion withdrawn in June 2016.

An exodus from bond funds accounted for that outflow. Investors withdrew £1.6 billion from fixed income funds over the month, the biggest outflow for those funds over the decade for which sales figures are available.

Fixed income investors were rocked by a big sell-off in US government bonds in October, after US Federal Reserve chair Jerome Powell said interest rates were a 'long way' from neutral, signalling a potentially more aggressive pace of hikes.

'Savers are stepping back from bonds with notable outflows from fixed income funds in October,' said Chris Cummings, Investment Association chief executive.

'With the era of quantitative easing anticipated to end in both the US and Europe, fixed income funds have seen their appeal dented. This declining appetite for bonds has contributed to UK funds experiencing their largest net retail outflow since the EU referendum.'

Figures from Lipper show the funds hit hardest included the UK's largest, Richard Woolnough's £21.9 billion M&G Optimal Income fund, with a net £745 million withdrawn.

Stablemate  M&G Global Macro Bond suffered a £616 million outflow, while AXA Framlingon Managed Income, Legal & General Sterling Income and GAM Star Credit Opportunities suffered outflows of more than £500 million.

The Lipper figures cover a broader spread of investors than the Investment Association statistics as they also include flows from institutional and non-UK investors.

Targeted absolute return funds, which aim to deliver a positive return in all market environments, were also hit with big outflows.

Investors withdrew a net £705 million from funds in the sector, although Lipper figures suggest this was mostly down to continued heavy outflows to what was once the UK's largest fund, Aberdeen Standard Investments' Global Absolute Return Strategies fund.

A further £1.1 billion was withdrawn from the fund in October, taking its assets, which peaked at £27 million in May 2016, down to £13.7 billion.

Sales of equity funds meanwhile held up well despite heavy falls for stock markets during the month. Overall, equity funds registered a net £100 million inflow, with global funds notching up their eighth straight month at the top of the sales charts.

Within the sector, passive funds were in demand, with the Vanguard FTSE Developed World ex-UK Equity Index taking in £184 million. The Legal & General Developed Four Factor Scientific Beta Index fund, which launched in August, enjoyed inflows of £843 million and already stands at over £1 billion in assets.

UK-focused funds continued to suffer outflows, albeit not as heavily as in recent months, with £214 million withdrawn in October, down from an average of £425 million over the previous 12 months.

Woodford Equity Income again suffered heavy outflows with £152 million withdrawn in October according to Lipper, taking the fund, which peaked at £10.2 billion in assets in May last year, down to £5.1 billion.

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