Investors shun stocks and shares amid market volatility
Brexit gloom prompted £506m in fund redemptions in January, bringing the total outflows from Isa funds in this tax year to £1.9bn.
In general, bond and mixed investments (bonds and shares) fared best as investors gravitated to ‘safer’ options. The five best-selling Investment Association sectors for January 2019 were sterling strategic bond, mixed investment 20-60% shares and mixed investment 40-85% shares. The worst-selling sector in January 2019 was Targeted Absolute Return with an outflow of £665 million. This is surprising, given that funds in this sector are designed to protect against market volatility.
UK equity funds saw outflows of £135 million in the month, but the big redemptions came from European equity funds which saw £450 million of net retail outflows.
A long term game
Laith Khalaf, senior analyst at Hargreaves Lansdown said: “Across the industry fund sales within ISAs have been decidedly negative this tax year. This is probably a combination of some ISA investors selling up, and some choosing not to commit new money to stocks and shares.
“While sitting out of the market is understandable given the current political and economic uncertainty, investing is a long term game, and those who watch from the sidelines could miss out on valuable gains if things turn out better than expected. Regularly drip feeding money into the market is a good way to gain some exposure to the upside, while keeping some powder dry in case share prices should fall.
“What is perhaps more concerning in these latest fund industry numbers is the possibility that Brexit is discouraging some investors from using their ISA allowance at all, which would mean missing out on valuable tax breaks. The ISA allowance is generous nowadays, and is likely here to stay, but we shouldn’t take this largesse for granted.”
Cash park option
Khalaf said that those who are wary of putting money in shares can secure their ISA allowance for this year without committing fresh funds to the market. One is to simply put cash into a stocks and shares ISA without investing it. The other method is to do a ‘Bed and ISA’, whereby an investor uses existing unwrapped investments to fund their ISA allowance, selling and then buying them back within the tax shelter.
He added: “Brexit will ultimately come and go, and so will the opportunity to use this year’s ISA allowance. Investors should think twice before letting the end of the tax year pass without taking advantage.”