Sales of investment funds dropped from £48.5bn in 2017 to £7.2bn in 2018. This reflects both poor sentiment towards stock market investment and a record-breaking year in 2017. It also shows that investors are still prone to buying when markets are buoyant – as they were in 2017 – and backing away when markets struggle – as they did in 2018.

2018 was very slightly better than 2016, another poor year, which registered retail fund sales of £7.1 billion. However, both years were well below the ten year average of £22.4 billion. The last year such low inflows were recorded was 2008, the height of the global financial crisis, when just £4.8 billion of net fund sales were achieved.

UK equity funds saw the worst performance, accounting for £4.9 billion of 2018 outflows. The UK All Companies sector has now been the worst-selling for five years in a row, with £12.9 billion withdrawn from UK Equity funds in the last three years alone.

The stronger areas were Global, US, Japanese, and Asian equities, all of which saw positive inflows. Fixed interest fund sales saw big swings, from a positive inflow of £16.2 billion in 2018 to an outflow of £2 billion in 2018, the worst performance in the last decade.

‘Annus horribilis’

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “2018 was another annus horribilis for the UK fund industry, with a similar showing from 2016 fresh in the memory. Bizarrely these two stinking years for fund sales were interrupted by a stonking year in 2017, which set new records for inflows.

“UK equities continue to be at the eye of the storm, witnessing large, consistent outflows as investors react to Brexit uncertainty by withdrawing their money. Bits of the UK stock market are extremely unfashionable right now, and that’s created value opportunities for adventurous investors who are willing to look through Brexit volatility. Flows into shares in other regions have been more positive, with Asian equity funds seeing a renaissance in popularity after a number of years in the wilderness. Indeed Asia Pacific markets look attractively priced on the global stage, according to our long term valuation analysis.

“The secular rise of index investing has also seen tracker funds continue to eat up market share. This can be put down to increasing awareness of these strategies, combined with razor sharp pricing in some key products, and the continued roll out of automatic enrolment in company pension schemes. Indeed the automatic enrolment programme can claim some credit for the steady flow of money into mixed asset funds too.”

Khalaf said that ethical fund sales had also picked up momentum in 2018, and this may mark an inflection point for the sector as ESG credentials rise up the priority list for UK boardrooms.