London: Central banks around the world may be pumping money into the global economy, but private investors remain decidedly cautious with their investment decisions, and bond funds continue to attract the largest inflows.
Fixed-income funds outsold all others for the twelfth consecutive month in August, with a quarter of all investment going into the asset class, according to figures from the Investment Management Association (IMA).
Strategic bond funds were the most popular sector, with net retail sales of £187 million (Dh1,108 million), followed closely by corporate bond funds, which saw fund sales of £184 million. The same pattern holds in Europe and the US.
In comparison, the UK All Companies Sector was the worst-selling sector in August, with a net outflow of £401 million, despite a strong rally in equities over the summer.
Recently, asset manager Jupiter launched a new fund of funds to capitalise on demand from investors for “safer” asset classes. The Merlin Conservative Portfolio invests as much as 61 per cent in fixed-interest. Separately, BlackRock has launched a new exchange-traded fund focused on top-quality government bonds.
The Jupiter fund will focus on investment-grade corporate debt, US Treasury Inflation-Protected Securities, emerging market debt and some high-yield bonds, and will avoid expensive government bonds, according to John Chatfeild-Roberts, head of the Jupiter Independent Funds Team.
“Many investors are put off by equity market volatility but feel they should not be sitting on cash deposits. With a maximum of 35 per cent invested in equities, the Jupiter Merlin Conservative Portfolio offers those investors the ability to dip their toe into the water,” said Chatfeild-Roberts.
While funds in the Merlin range have performed well in recent years, advisers warn that savers should be cautious about investing too much into bonds.
Brian Dennehy of Fundexpert.co.uk said that while there is demand from investors for relatively cautious funds, it is already well met by existing funds, such as Fidelity Multi Asset Income, Jupiter Distribution and Henderson Multi-Manager Diversified fund.
Other advisers point to the fact that valuations in some parts of the bond market look stretched.
“The launch does coincide with a point where parts of the bond market don’t look great value and spreads have tightened, something John Chatfeild-Roberts has said implicitly himself,” noted Jason Hollands of BestInvest.
Willem Sels, UK head of investment strategy at HSBC Private Bank, said he has become more optimistic on equities. While valuations have moved up from their lows following the recent rally in stock markets, he believes equities remain compelling relative to history and compared with bonds.
“The valuation gap between bonds and equities has been high for a while without investors making the switch, largely because bonds continued to rally and equities remained volatile,” he said. “But as equity momentum improves and the safe haven bond rally peters out, we believe those cross-asset flows will start to occur.”
Some private investors are already becoming more confident in the equity markets. A recent survey by Capita Registrars found that private investors added a net £1.3 billion to their holdings between the start of June and the end of August, compared to £1 billion in the previous quarter.