It seems that this year’s Isa season was not quite the damp squib that was first feared.
Investment Management Association figures show that February’s Isa sales were £88m, almost 40 per cent down on last year. This is alarming considering that the market correction did not kick in until the beginning of March.
The market wobble and effect of recent interest rate rises appeared likely to hit consumer confidence further but most brokers and fund houses reported a late spike in sales that brought inflows broadly in line with last year.
Hargreaves Lansdown head of research Mark Dampier says despite four consecutive years of double-digit returns from the market, advisers may have started to take Isas for granted after eight years.
He says: “The bottom line is that there is no good reason for an investor with sufficient capital to neglect their Isa allowance. Even if recent market volatility put you off, clients can put the full allowance into cash and invest it at a later date.”
Chelsea Financial Services head of research Juliet Schooling says recent events in the market are bound to have taken effect. She says: “Our results were not quite as strong across the board as first anticipated, thanks largely to recent market volatility that has put off new investors in particular.”
However, the 2007 Budget which introduced an future increase in the Isa allowance to £7,200, with the cash component increasing to £3,600, may have stoked up investor interest.
BestInvest senior investment adviser Hugo Shaw says this was one of a myriad of reasons that worked to bring about the upturn towards the end of the tax year.
He says: “First, the market stabilised a couple of weeks before the end of the Isa season. Whether that has been enough to warrant a massive spike towards the end of the year is questionable but if you add the Government’s decision to increase the Isa allowance and the rise in online applications that typically come in at the end of the year and you can see why there was a late levelling out.”
On a sector basis, the Isa season threw up few surprises. UK investments, particularly UK equity income, were the best performers.
UK equity income was the biggest selling sector on FundsNetwork, taking 21.86 per cent of inflows in the first quarter, while six of the top 10 sellers on Cofunds were equity income funds.
Bill Mott’s new PSigma income fund was one of the big winners, taking in £108m during its short three-week offer period.
Schooling says: “Bill Mott did very well, indicating just how strong a reputation he has in the market. He was not in our top 10 best sellers list but he was not far away and he has already started to pull in money for next year.”
Shaw says: “Mott came into the Isa market late in the day and has done remarkably well in such a short time. He has a great shot at being one of the best sellers next year.”
Cautious managed and property funds were also popular and commodities remained in favour.
FundsNetwork head of sales and marketing Rob Fisher says: “Property and cautious managed funds have both been major successes in recent years as they offer a level of security in changing markets.
“For us, it has been pretty strong across the board, with the UK all companies and balanced managed sectors also doing well, thanks to a number of clients seeing the need to diversify their investment. Meanwhile, ethical funds also appeared on the radar for the first time this year.”
FundsNetwork introduced a series of packaged Isas in February which offer access to three core and four themed investment offerings. This helped it achieve an upturn in sales through its last-minute Isa collection points, a number of which were placed across the country. Total applications rose from £12m to £15m.
Fisher says: “Most of those applications are Isas although there will be some Sipp investment applications in there as well. The truth is this season has been fairly strong but it has been by no means as buoyant as previous ones. If anything, the results have been less pronounced thanks to the sudden take-off of Sipps this year as investors see the opportunity to build their own pensions.”
Will Sipps affect future Isa sales? Dampier says: “They should not really cut into each other’s numbers. It is just a case of there now being more availability with Sipps. I would be very surprised if they had much correlation to one another.”
If Isa sales this season have been seemed tame, it appears the reasons are more short than long term. The tax-efficient gains mean the likes of Neil Woodford, Anthony Nutt and Bill Mott are always likely to clean up.