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Diverse reaction

Ginny Broad The IMA’s View

What were you doing in 2000? Perhaps you had a different haircut and maybe your financial situation looked a bit different too. Well, funds and portfolios were also looking a bit different.

Total funds under management stood at £261bn at the end of 2000 – 57 per cent of their current level of £460bn.

The Investment Management Association has compiled some analysis on retail investor trends, looking back over its figures for the fund management industry, to provide a longer-term perspective than the monthly releases we produce.

One very striking difference between now and 2000 is that investors are buying a wider range of funds and a wider range of asset classes. In 2000, nearly 80 per cent of assets bought were equities compared with 49 per cent currently and, contrary to popular myth, technology funds, or rather the IMA technology and telecommunications sector, totalled £2.9bn, just under 8 per cent of the total gross retail sales for that year.

Bonds are making up a bigger proportion of what investors have been buying this year at 29 per cent whereas in 2000, we were looking at just 11 per cent.

Another difference is fund choice, with more non-UK, non-European funds being bought. So altogether, investors’ choices are much more diversified than they used to be.

2000 was a record year for investment sales, with £17.7bn in net retail sales. Interestingly, this year, we passed that level in September when sales reached £18.7bn, so 2009 is set to be a record year for investment sales.

In 2000, Isas were still comparatively new, having been introduced in Gordon Brown’s first Budget, and the allowance was lower than it is today. October this year saw the Isa allowance for the over-50s rise to £10,200, overtaking the Conservatives’ Pep allowance of £9,000 a year.

The higher allowance may well have contributed to higher levels of investment as October saw the highest-ever month for gross Isa sales. Indeed, it was the highest month for Isa sales outside the Isa season.

The first few years of Isas were a big success. Although Isas only started in April 1999, that year saw net Isa and Pep sales of £8.5bn and 2000 saw total sales of £7.8bn. In more recent years, Isa sales have been at much lower levels, with the last four years showing negative net Isa sales. In other words, investors have cashed in more investments than they bought in each of the last four years.

Since March this year, each month we have seen positive Isa sales, with the total net Isa sales year to date being £2.3bn, less than a third of the £7.2bn achieved in the first 10 months of 2000. However, it is pleasing to see positive inflows once again.

Isa investors have been pretty consistent with their choice of investment funds in the last three years. The IMA’s cautious managed and
protected sectors have been in the top five net-selling sectors over three years. The five worst-selling IMA sectors have remained the same – UK all companies, corporate bond, Europe excluding UK, balanced managed and UK equity income.

Some things change and some things stay the same.

Ginny Broad is head of communications at the Investment Management Association

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