Investment funds cash in as savers surge back

SALES of investment funds reached the second-highest level on record in the first six months of 2010 as low interest rates drove more savers into equity markets.

Net sales of unit trusts - sales after redemptions and withdrawals - jumped to 2.1 billion in June after a sharp drop in May when stock markets hit turbulence, the Investment Management Association (IMA) revealed yesterday. The rebound, which helped take net retail sales for the first six months of the year to 10.8bn, came despite the FTSE 100 ending June 5.2 per cent down on the end of May.

Private investors have now piled more than 2bn net into unit trusts in 12 of the past 15 months as the market recovery has helped restore investor confidence. Net retail sales hit an all-time high of 25.8bn in 2009, up from just 3.8bn the previous year, and buoyant markets over the coming months could see 2010 set a new record.

Julie Patterson, director of authorised funds and tax at the IMA, said: "Investors have continued to show their confidence in funds this year, with sales for the first six months of 2010 being only slightly down on last year, which was the highest year on record.

"Also, investors are diversifying, choosing a wide range of assets as well as different investment regions and sectors."

Cautious managed funds were the most popular in June, followed by strategic bond and property funds. There were no equity-only sectors in the top five, reflecting caution among investors switching to investment funds as an alternative to the moribund savings market.

The IMA also revealed that net sales of individual savings accounts (Isas) for the first half of the year reached 3.1bn, up from 1.8bn in the same period in 2009 and the best selling first six months since 2001.

June Isa sales totalled 434m, the highest figure for the month in a decade. Isa sales were boosted in April when the annual tax allowance for the accounts increased for all savers to 10,100, having been raised for the over-50s last October.

Rebecca O'Keeffe, head of investment at fund supermarket Interactive Investor, said trading levels on the site reflected the year-on-year increase in investor activity across the industry. "Investor confidence remains strong overall with large inflows into funds both inside and outside of the Isa wrappers," she said.

Investors are particularly looking for aggressive growth opportunities in both established and emerging markets, O'Keeffe added.

"Among the most popular funds so far this year are the First State Indian fund, the Invesco Perpetual Latin America and the Aberdeen Emerging Markets fund. With the Bric [Brazil, Russia, India and China] economies continuing to perform well, these are likely to remain popular among private investors for the foreseeable future."

Overall funds under management by UK firms fell by 2.2 per cent to 488.2bn at the end of June as inflows were offset by a decline in market values.

However, the level of funds under management ended June 25 per cent higher than a year ago and the fourth highest on record.