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Confidence is starting to flow

Last month, I mentioned the findings of the IMA’s third Great British Investor Report – based on a survey of over 4,000 retail investors in May – which suggested that investor confidence may be on the up but it should be noted that this was against a background of the majority of investors thinking that the FTSE 100 would not recover to the 6,000 level for over two years, so, more of a case of cautious optimism.

Since publishing the survey, we have also published two sets of fund sales figures which have shown the flow of retail investors’ money into funds. Broadly speaking, investor behaviour is continuing to mirror the findings of the survey.

Looking at overall fund flows, investors have shown a willingness to come back to the market over the last eight months. Between November 2008 and May 2009, each month saw an inflow of over £1bn in net retail sales and from April 2009 to June 2009 inflows were over £2bn per month, reaching almost £3bn in May. Net retail sales in the second quarter were the highest on record and net Isa sales the highest for six years.

On top of this, after six months of bond funds being the favoured asset class overall, equity funds saw an inflow of almost £1bn in June, just outstripping bond fund sales.

Looking more closely at which equities were favoured reveals that international equities are doing well. That said, on a sector by sector basis, the corporate bond sector remained the most popular UK-domiciled net retail sector for the eighth month in a row, with an inflow of over half a billion.

In line with overall funds, funds of funds also saw record net retail inflows in quarter two and, in fact, sales in this quarter alone have already surpassed those for the whole of 2008. In terms of which asset class is favoured for funds of funds, investors are choosing balanced funds by long way over in preference to equity or bond funds. Looking at fund flows on a sector by sector basis, this is followed through with cautious managed being the most favoured sector, although this is closely followed by global growth equity funds, mirroring the move towards international equities noted for overall fund sales.

One of the findings of the latest GB Investor Report was that investors are less likely to think they should be putting money into risk-averse products – 23 per cent – compared with 39 per cent a year ago, with 43 per cent saying if you see an opportunity you should take the risk.

The latest fund statistics perhaps begin to show this being borne out by what could be the beginning of a reversal in the fortunes of equity funds and the favouring of balanced funds. That said, we can hardly expect investor caution to disappear completely in the near term but the signs of increasing investor optimism compared with a year ago are promising. We need a backdrop of steady market performance to fuel and further enhance investor confidence.

Mona Patel is head of communications at the Investment Management Association

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