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Is the Isa freeze starting to thaw?

The 2002 Isa season is running out of time to produce any surprises. Industry sales figures for February and March are yet to be reported, but January was down by around 40 per cent on the previous year, with many pundits expecting February and March&#39s numbers to be similar.

Hargreaves Lansdown investment manager Ben Yearsley says: “I think the worst-case scenario will be that sales are down by around 40 per cent on last year, which will hit companies hard. Many of them have spent quite a lot on marketing this year but will not have seen the normal returns from it.”

With no clear-cut sign of an imminent market recovery, the question is how firms are going to fare in the post-Isa season market. With sales already depressed, Yearsley believes the retail fund arena could be even quieter into the spring and summer.

Credit Suisse Asset Management managing director Ian Chimes believes that while the first few days of each tax year normally see a surge of Isa sales as keener investors make use of their new allowance, this year&#39s may be considerably less pronounced.

He says: “I think it is going to be difficult to get the direct mail/off-the-page investor to commit money twice in six weeks. If people are successful in getting the floating voter – the investor that wasn&#39t sure whether or not to invest – then it will be difficult to get them to do it twice in such a short space of time.”

Despite Isa sales suffering, Chimes remains optimistic about sales of unwrapped unit trusts and Oeics. He says: “Recently, you have had a buyers&#39 strike and people who have tended to commit money to the equity markets on a regular basis have sat on their hands and a lot of cash has built up. Nine out of 10 calls we get now are asking whether now is the time to buy again. You are only going to need a flickering of a recovery in the US and the money will start to come back into the market.”

CSAM has been one of the luckier providers this year. With equity income funds in fashion, the money has pour-ed in to Bill Mott&#39s funds, leading CSAM to record its biggest-ever month of sales in February.

But Chimes believes the trend will start to move away from the equity income and bond fund focus of this winter, with investors slowly starting to look to Europe and the US.

Threadneedle communications director Richard Eats believes there will be a gradual switch from value to growth over the course of the year.

He says: “As the year goes on, although we are not expecting things to roar away, we think that the cyclicals and defensives will have had their day and carefully managed growth funds will start to look attractive.

“We also think as economic recovery gets started, the high-yield end of the bond market will also begin to attract some interest.”

Eats sees Asia and emerging markets as two other regions which are set to perform well in 2002.

But he also believes that while sales of unit trusts and Oeics may pick up, the Isa market is likely to remain stagnant throughout 2002, with perhaps some signs of recovery in the fourth quarter.

He points out that after markets took a hammering in the wake of September 11 last year, there was a strong recovery in October, November and December.

By the final quarter of this year, this recovery will have worked its way through into funds&#39 one year returns. Eats believes that these higher returns will encourage investors back into the markets as they finally see more positive past performance.

The problem now remains for IFAs and providers alike as to how to persuade investors to commit their money back to the markets. For several months, fund managers have been preaching of the opportunities in the market, but most investors have remained unconvinced.

Among IFAs, sentiment certainly seems to have imp-roved. In the latest JP Morgan Fleming IFA sentiment survey, more than 75 per cent said they believed equity markets would be higher than their current levels in six months time.

Michael Philips proprietor Michael Both says: “I am definitely seeing a slight unfrosting of the equity market now. It is early days yet but I have changed from negative to potentially positive.

“I am nervous of advising clients to go into corporate bonds – especially high-yield – because the default rates have not been so high for a long time. If clients are at all uncomfortable, then cash is fine but we are definitely starting to look at equities again.”

Both believes the average investor still needs a lot more persuasion to get back into equities. But with IFAs now starting to sing from the same song sheet as the ever optimistic fund managers, the prospects for the new tax year do not look too bad.

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