Investment funds on a high after savings surge

Published on Monday 28 September 2009 23:13

INVESTMENT fund sales set an August record last month as the stock-market rally boosted investor confidence.

Net sales of unit trusts and open-ended investment funds (Oeics) reached 2.2 billion, down on each of the previous three months, but compared with just 58.7 million in August 2008, the Investment Management Association (IMA) revealed yesterday.

Private investors were encouraged by the continuation of a market recovery that saw the FTSE rise 6.5 per cent over the month, taking it 40 per cent higher than its March nadir.

Net retail sales for the year climbed to 15.9bn, according to the IMA, which said inflows had been strong each month this year after four months of negative sales in late 2008.

August marked the sixth consecutive month of net individual savings account (Isa) inflows, after five years of withdrawals. Sales of the tax-efficient wrapper totalled 151m last month, 31 per cent down on July but in marked contrast to outflows in August last year of 299m, when more money was being redeemed than invested.

Net Isa sales for the year now total 1.8bn and the figure is likely to be boosted further next month when the annual allowance for over-50s rises to a 10,200. Many over-50s have held back from using the annual allowance until they can invest a lump sum up to the new limit.

Richard Saunders, chief executive of the IMA, said: "Investors continued to add to their holdings in August, as they have been doing all year so far. It is particularly encouraging to see investors making use of Isas again."

Equity funds accounted for almost a third of net sales, at 696m. But bonds funds remained the most popular asset class for the eighth month out of the past nine, with 34 per cent of net fund sales.

Property funds experienced the highest investment levels since June 2007, with net retail sales of 129m a significant jump from the 34m taken in July. The rise came as the monthly commercial property index from the Investment Property Databank produced the first positive return last month for the first time since June 2007, albeit by just 0.9 per cent.

Rebecca O'Keeffe , head of investment at fund supermarket Interactive Investor, said it experienced a five-fold increase in share trading last month, compared with August 2008.

"This trend has continued in September as investors trade more with transfers in at record levels. Online trading is now simpler than ever and investors have discovered an increased appetite for share dealing."

But Barry O'Neill, chartered financial planner at Thomson Shepherd in Aberdeen, suggested that increased fund sales may be less about a return to confidence than continued dissatisfaction with the returns available from savings accounts.

"We are getting more new investment inquiries as people get fed up with poor returns from cash and start to accept a degree of risk again," said O'Neill.

"The fear of missing out is obviously stronger than the fear of getting burned again."

The total value of private and institutional funds under management rose 6 per cent month on month to 439bn in August, the highest level since May 2008.