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Wind in the sales

As the FTSE 100 edged past 6,220 at the end of 2006, total investment funds under management reached £410bn, a healthy 18 per cent up on the £347bn at the end of December 2005.

Isa funds under management rose by 15 per cent, reaching £51bn by the end of 2006 and accounting for around 12 per cent of total funds under management.

Net retail sales were up by 80 per cent on 2005 and over three times the level seen in 2004. This is the second highest level of net retail sales in the last 10 years. Net Isa sales showed a healthy pick-up, being 39 per cent up on 2005. Intermediaries continued to take the vast majority of retail sales and, for the first time, fund supermarkets took the majority of Isa sales – a position until now held by salesforces/tied agents.

In terms of asset class, equities remained the most popular for the third consecutive year, taking 53 per cent of net retail sales. Of course, the clear winners were property funds which accounted for 44 per cent of all net retail equity sales or 23 per cent of all net retail sales. This made the specialist sector the most popular in net retail sales terms, followed by UK equity income lagging some way behind with just over half the level of sales seen in the specialist sector.

Funds of funds have seen their highest sales in the last 10 years, reaching almost £3bn in net retail sales, a rise of 33 per cent since 2005 and 120 per cent of the level reached in 2004. Ethical and tracker funds remain at 1 and 6 per cent of funds under management.

The best performing sector, taking the performance of an average fund, was European smaller companies showing 31 per cent growth, some way ahead of UK smaller companies at 24 per cent. The specialist sector came eighth with 15 per cent growth.

Global emerging markets and European smaller companies were the best performers over five years while European smaller companies and specialist funds took the top spots over 10 years.

The popularity of property as an asset class has led to the inevitable clamour for the creation of a property sector. Despite there being 23 property funds in the specialist sector, the performance category review committee has decided there are not enough funds of a similar enough nature to justify a separate sector.

The rationale for IMA sector classification is to enable investors and advisers to compare like with like. The funds in question invest directly and indirectly in a range of assets, from property shares to commercial property, across a range of geographical areas. In the same way that it would be misleading to compare a UK all companies fund with a global emerging markets fund, it would be misleading to compare a global property share fund with a UK commercial property one. Until there are enough funds of a similar nature, it is not sensible to create a separate sector.

With the Isa season just round the corner and confirmation from the Treasury that Isas will remain a permanent part of the savings landscape, we may be in line for a return to pre-2004 Isa season sales. The Government is also consulting on reforms to the Isa regime, among them a proposal to allow transfers from cash into stocks and shares without affecting the annual entitlement. Once this happens, it will be interesting to see if improvements in the market over the last couple of years will encourage cautious savers to return – or turn – to the stockmarket.

Mona Patel is head of communications at the Investment Management Association.


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