This time last year, fund managers and IFAs across the country were being inundated with Isa applications as investors clamoured to get their share of tax-free investment in the technology boom.
But Autif's latest figures show impending doom and gloom in the run-up to the end of this year's Isa season. The technology fund buying of last year does not seem likely to be repeated for any investment sector this year.
Autif is predicting total Isa sales could fall by as much as 30 per cent on last year. Its latest figures show sales fell by 20 per cent in January alone. Net sales fell to £517m down from £646m. Gross sales were down by 5.4 per cent to £637m from £673m last year.
It could hardly be more different to last year, when the last minute rush to get an Isa bumped up sales by billions. In March 2000 sales peaked at £2.4bn before falling to £1.8bn in April. The previous year's Pep market painted a similar picture, with sales reaching £3.2bn in March 1999.
Autif PR manager Clare Arber says: “We do think sales will be lower than last year. There has always been a last minute rush, based on previous years. That is not to say it won't happen this time but I do not think they will reach the same levels as last year.”
Dennehy Weller managing director Brian Dennehy says: “There will be a last-minute rush like every year but it will be from a much lower level in the first instance. We will not make up the lost ground and sales will not match last year's figures.”
IFAs and fund managers believe that market uncertainty and investors suffering the after-effects of falling technology stocks is causing the slowdown.
Arber says: “The stockmarket is going in the wrong direction and it is also a case of human nature. There is nothing to grab people's attention.”
Last year, Isa sales took on meteoric proportions with the end of the tax year looming and technology lighting a spark in the eyes of investors.
Threadneedle director of communications Richard Eats says: “A big chunk of Isa sales last year was about wonder funds, which were technology. If you have not got one, your sales can look down.”
Dennehy says: “Last year we had technology. It was the one sexy thing people were attracted by, and the effect was that Isas and technology became linked in people's minds. Isas seemed great because technology was great – they had glory by association.”
That link has now been broken and there is no dynamic sector to get the public at large interested in investing. Fund managers are trying different things, such as hedge funds, but they are complex and difficult to market.
Economic slowdown and the downturn in markets is also putting off potential investors, who are rejecting the most basic principles of investing when markets are low.
Dennehy says: “Markets are generally dull and there is a feeling of gloom around. Because of the economy and the fall of technology, people are not motivated to buy.”
The technology fervour last year encouraged many people who would not usually invest in equities to take a plunge. The subsequent fall of technology stocks may have left a lot of people unwilling to invest this year and wary of stockmarket investments.
Eats says: “I suspect that sales will be down overall.A lot of the people investing last year were not normal equity investors but were lured in by the thought of technology. They will not be investing this year – they have probably had an unpleasant experience and will not come back.”
“A lot of Isa investment comes from investors switching shares or assets into a tax-free vehicle. But these are 5 to 10 per cent down because of the poor stockmarket performance, so people have less to invest in an Isa.”
But fund managers are starting to notice the number of literature requests from IFAs is starting to increase as March approaches, with IFAs still hoping for a late rush of investors.
Michael Philips partner Michael Both says: “I hope and expect this year to be the same as last. People are never usually motivated unless they are presented with a deadline. People first became overly enthusiastic and then overly nervous. This is too strong a reaction in both cases.”
IFAs should be encouraging investors to realise that investments are long-term and that they can invest in Isas that will ride out the ups and downs in the market.
Eats says: “People who have a solid business and a spread of funds will do well because of this. The old irony is that share prices are better value than they were a year ago but people bought more when shares were expensive than now when they are low.”
“This is where the IFA can add enormous value in persuading clients to invest in good value, good quality funds and making sure they avoid things that are too frothy, as technology proved to be.”