Private Investors Fall Out Of Love With Equities-Based Funds As Outflows Reach 10-Year High

Recent data published by the Investment Association indicates that private retail investors are pulling their money out of shares-based funds at the fastest rate in ten years. The Investment Association, an asset management trade body, publishes regular data snapshots that provide a valuable insight into investor sentiment. And it seems that currently, that sentiment is currently increasingly negative on the prospects of the equities market.

The data showed a total of £4.6 billion net retail investor outflow from equity funds over the three month to the end of September. That represents the largest outflow since the Association began keeping records in 2009, meaning the haemorrhaging of private investor capital out of shares has reached its highest level in at least a decade.

London-listed shares were shed at a particularly heavy rate, with £2.3 billion taken out of funds focused UK equities – another record. Net outflow is calculated by subtracting new investments from redemption figures. US equities-focused funds had the lowest net outflows.

Chris Cummings, the Investment Association’s chief executive commented:

It is believed that retail investor sentiment has been most shaken by Brexit uncertainty and the ongoing trade war rumbling on between the USA and China.

“Global uncertainty cast a long shadow over stocks and shares in the last quarter.”

As the trade body representing all of the major asset management groups operating in the UK, the Investment Association’s access to data from companies managing approximately £7.7 trillion in assets adds particular weight to its insights.

The Association declined to speculate as to the possible additional negative impact on retail investor sentiment towards actively managed equities funds the recent and well publicised closure of the Woodford Equity Income Fund may have had. Fallen former star fund manager Neil Woodford’s firm, which until recently managed three equities-based funds, is a member of the Investment Association. Its biggest, and flagship, fund was the retail-targeted Equity Income fund, which was first suspended and then closed down after it faced a liquidity crunch following a rush of big redemptions from institutional investors after an extended period of underperformance.

With a large part of its capital tied up in illiquid privately held companies, bending rules on the percentage of illiquid assets are held in retail-facing equities funds, the Woodford fund was unable to honour large redemption requests. It was first forced to freeze the fund, locking investors in including tens of thousands of retail investors whose capital was pooled together with large institution investors. When progress on liquidating assets to facilitate redemptions was not quick enough, the fund’s administrators, Link Fund Solutions, made the call to close it down. The fund’s assets are being liquidated as quickly as possible to pay back investors but it is expected that they could lose up to 50% of their capital invested.

However, while billions of retail investment capital was fleeing actively managed funds, passive index trackers still saw net inflows worth £1.5 billion over September. That’s indicative of an increasing shift out of actively managed investment vehicles to much cheaper trackers. Data demonstrating that a majority of active fund managers fail to consistently beat their index benchmark has weakened investor faith that its worth paying the higher fees charged by managed funds. 17% of the £1.3 trillion worth of capital under management in the UK is now invested in passive vehicles.

British fund managers are reportedly also readying themselves for the trend towards net investor outflows to continue. A recent poll of 1200 retail investors conducted by The Share Centre, the online investment platform and stockbrokers, saw private investors respond that they are postponing investment decisions until after the General Election to be held on December 9^th.