Investors are continuing to pile into fixed income with over half of all money invested into funds in July being allocated to bond vehicles.
The sterling corporate bond sector again took the lion’s share and fixed sectors have now been the best sellers for eight consecutive months, according to the Investment Management Association.
Of the net retail sales of £903 million over the month, some £480 million was poured into bond funds with the sterling corporate bond sector the most popular taking in £218 million.
Sterling strategic bond funds were the third best seller attracting £109 million with global bonds in fourth with £103 million. The mixed investment 20-60% shares sector was the second most favoured, seeing inflows of £203 million, which further underlines investors’ cautious attitude.
The news that fixed income funds’ popularity remains undiminished will do little to assuage concerns about liquidity in the capital markets. Last month M&G said it will take steps to limit inflows into Richard Woolnough’s (pictured) £6.31 billion Corporate Bond and £5.16 billion Strategic Corporate Bond funds due to the manager's about how the size of the funds would affect his ability to implement his investment process.
Indeed, Fidelity Strategic Bond fund manager warned today that although credit quality has held up 'quite well' as corporate profits have proven resilient, the sheer wall of money flooding into the asset class means there is less value to be found.
'Valuations are becoming stretched in some areas of the sterling market, particularly some of the short-dated bonds from the previously mentioned sectors,' he said. 'This means there are fewer compelling opportunities for adding sterling investment grade credit risk.'
Whether investors will come to share this view in the near future remains to be seen.
Looking at the £903 million net inflows as a whole, the figure was in line with the monthly average of the past 12 months but down from the £980 million seen in lest July and the second lowest monthly total in 2012.
Unusually, the best-selling equity sector was global equity income, which saw inflows of £102 million, the fifth highest overall. This was nearly double its monthly average of £56 million since the sector was launched in January and reflects investors’ concerns about the domestic economy and preference for more defensive income-producing assets.
IMA chief executive Richard Saunders said: 'The latest month shows a similar picture to previous months this year, with net retail sales around the £1 billion mark and a continued preference for bond funds and mixed funds.
'Investment in equity funds continues overall to be broadly neutral, but our analysis of net retail sales over the last 12 months shows an interesting pattern of investor preferences shifting towards global funds at the expense of the UK, North America and, especially, Europe. This is perhaps not surprising in view of economic news, but the figures are nonetheless striking.'