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FE Adviser Fund Index

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The IMA global sector has been the darling of retail investors over the past few years but there are signs that sentiment might be turning.

In the first nine months of 2011, net sales in the sector amounted to over £1.8bn, after £2.1bn across the whole of 2010. The scale of the inflows suggests investors were trying to access returns from risk assets by looking outside traditional single-country biases. Even after sharp falls in equity markets in August, sentiment towards them seemed robust.

The jump was all the more impressive following a July in which the sector had finally faltered in its run at the top of the sales charts. Yet, given September’s sales were also weak, coming in at a net £32m, there are signs that its fortunes may have begun to taper off.

Over the past three years to October 28, the sector has demonstrated its value as the average fund has returned 48 per cent. The FE Adviser Fund Index aggressive portfolio, which has more than 80 per cent of its total allocation in equity products, was even more impressive, returning 63.7 per cent over that period.
But the past 12 months have proven more of a challenge for equity indices. Ongoing problems in the peripheral eurozone have raised the threat of contagion across global markets and the focus has moved once again to policymakers’ responses to a weakening global economy.

The IMA global and AFI aggressive indices have given back much of their early gains this year, while the FTSE World index has fared little better. Under the circumstances, panellists could be forgiven for dumping a portion of their equity exposure, particularly those holdings most exposed to difficulties in the eurozone.
Yet the November rebalancing seems to rebuff such a claim. Although overall panellists reduced their equity exposure, dropping European allocation by 2 per cent, only 1 per cent of this moved into cash. This suggests adventurous investors may still be seeing a value argument.

Whitechurch Securities head of research Ben Willis says: “Markets are still being dictated by macro sentiment. People are looking at risk-on/risk-off trades, so it only takes one shock to the system to send everything down again. From our point of view, we have been looking at equities from an income perspective. I think you will see a pattern of ebbs and flows.”

Flows may be slowing but it is worth noting that retail investors continue to be net buyers of equities, albeit at levels that look relatively modest compared to previous months. A full rout is only likely to take place if present concerns begin to crop up in economic data. But to maintain the value argument, it is not sufficient for equity markets to look cheap relative to their historic peaks. Without demand impetus, Western econ-omies that have largely been driven by debt-fuelled consumption are unlikely to spring back.

Data supplied by FE

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