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New Year stock market cheer falls flat with fund investors

Stock markets rebounded strongly at the start of the year following 2018's sell-off, but early signs show it wasn't enough to entice investors back into funds.

New Year stock market cheer falls flat with fund investors

Stock markets have enjoyed a strong start to the year after the heavy sell-off in the last three months of 2018, but the early signs are that funds investors are still wary.

UK retail investors pulled a net £859 million from funds in January, according to figures from fund manager trade body the Investment Association.

That follows the £6 billion withdrawn in the last three months of the year as stock markets fell, the biggest quarterly redemption on record.

'Dry January extended to the fund markets as savers remained cautious, heralding the fourth consecutive month of net retail outflows,' said Investment Association chief executive Chris Cummings.

'The threat of a no-deal Brexit, eurozone instability and international trade tensions combined to dampen investor appetite.'

Laith Khalaf, senior analyst at Hargreaves Lansdown, highlighted that the picture was particularly bleak for ISA fund sales.

After inflows last April spurred by the rush to use up allowances before the end of the year tax, stocks and shares ISAs run by fund companies and the five platforms surveyed by the Investment Association have registered outflows every month since.

‘Across the industry fund sales within ISAs have been decidedly negative this tax year,' he said.

'This is probably a combination of some ISA investors selling up, and some choosing not to commit new money to stocks and shares.'

With the end of this tax year nearing, Laura Suter, personal finance analyst at AJ Bell, said fund groups would be 'praying for an ISA season bounce to boost sales in the coming months, but with fears around the Brexit outcome and general nervousness in markets, they may prove disappointed'.

Funds in the Investment Association's Targeted Absolute Returns sector were hit with the heaviest withdrawals. Once again Standard Life Global Absolute Return Strategies, which has been haemorrhaging assets amid poor performance, accounted for the bulk of the outflows.

Figures from Lipper, which covers flows from all, not just UK retail,  investors, show a net £866 million was withdrawn from the fund in January. The fund's assets stood at £10.6 billion at the end of the month, down from a peak of £27 billion in May 2016.

European and UK funds continued to suffer outflows, of £450 million and £135 million respectively.

Lipper figures show that the worst-hit European funds included the iShares Continental European Equity Index tracker fund and two of BlackRock's active funds, European Dynamic and Continental European Income.

Among UK funds, the iShares UK Equity Index fund suffered the heaviest outflows, followed by the Jupiter Income Trust and another iShares tracker, 100 UK Equity Index.

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