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Hargreaves Lansdown comments on Investment Association 2017 data

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Laith Khalaf, Senior Analyst, Hargreaves Lansdown has commented on the Investment Association data which shows that investors put a record GBP63 billion into funds in 2017, taking the total amount invested within the funds industry to GBP1.2 trillion, also a record level.

Fixed income was the best-selling asset class with net retail sales of GBP14.3 billion and, for the first time, over GBP1 billion was invested in ethical funds, while tracker funds now make up 13.5 per cent of all funds under management.

Meanwhile, UK equity funds continue to see outflows. In 2017, fund investors made on average 10 per cent.

Khalaf says: “2017 was a bumper year for investment industry sales, as an unprecedented wall of money made its way into mutual funds. Rising markets, an improving global economy and low interest rates no doubt all contributed to the record level of investment.

“With a 10 per cent typical growth rate across the year, fund buyers were well rewarded for their investment, and showed a clean set of heels to cash savers, as deposit rates are still delivering a paltry rate of return thanks to loose monetary policy.

“If you knew in advance that 2017 would feature rising inflation and the first UK interest rate hike in 10 years, you wouldn’t have predicted a great deal of investment in bond funds, nonetheless these vehicles were the surprise winners when it came to attracting money last year.

“The precise reasons for this phenomenon still remain elusive. Some cash savers may have moved up the risk spectrum in search of a better rate of return, other investors may have sought diversification from strongly rising equity markets. Others yet may simply have been expressing a negative view on the UK economy.

“Indeed, the UK remains a notable pariah on the global stage, with money pouring out of UK equity funds throughout the back end of last year. Brexit and a weak government do of course give pause for thought, however the phobia towards the UK looks overdone, and this presents a contrarian buying opportunity. While there are clearly risks, the UK stock market offers investors a healthy level of income, and is home to a wealth of talented fund managers.”
 
 Khalaf concludes that 2017 may be remembered as the year that ethical funds finally started to gain traction, after reaching GBP1 billion in sales for the first time.

“In the grand scheme of things, the dial is only twitching in the right direction though, as the proportion of money invested in these funds still remains the same as it did 10 years ago, at just over 1 per cent. Contrast this with the spectacular rise of tracker funds which have gone from commanding 6 per cent of industry assets to 13.5 per cent over the same period.

“However ESG is definitely rising in importance within fund groups and is becoming more embedded in traditional asset management, so sales of pure ethical funds are only one visible part of an evolving trend that has further to run.”

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