Fixed income funds have seen net outflows of £333m in August as investors stick with equities, according to the latest figures from the Investment Association.
Fixed income net outflows were the largest since June 2013, according to IA, and much larger than the £42m seen in July.
Investment Association chief executive Daniel Godfrey says: “In terms of asset allocation, investors appear to be sticking with equities – particularly equity income funds – whilst withdrawing money from bonds, perhaps in expectation of an interest rate rise.”
Tilney Bestinvest managing director Jason Hollands agrees that investors are wary of fixed income as all eyes are on the US interest rates hike.
He expected a higher demand for targeted absolute return funds given their extra layer of protection, with the funds seeing £243m of net retail sales in August.
“[Fixed income] outflows could yet become a stampede prompting mutterings about a potential liquidity crunch for bond funds with the [Securities and Exchange Commission] asking US mutual funds to wargame how long it might take to unwind positions.
“Against this backdrop, absolute return strategies are seen as a more palatable option for reducing portfolio volatility. At least for those investors who don’t especially need yield.”
Meanwhile money poured out of Asian equity funds, the worst-selling region in August, with net retail outflows of £314m – marking the highest outflow on record for the region.
Equity was the best-selling asset class for the fourth consecutive month with net retail sales of £503m, compared to just £2bn a month before, while at a sector level, UK Equity Income was the most popular sector with net retail sales of £520m.
Total net retail sales were down to £690m, which was the lowest since January 2015 when they reached £401m and a large drop from the £3bn seen in July.
Godfrey says: “Market volatility may have made investors more cautious in August, reinforcing a tendency for sales to dip over the summer period.”