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Trump win sparks return to UK equity funds

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Last November Donald Trump was elected President of the United States, and it was also the month UK retail investors were tempted back into equity funds.

Net sales of equity funds reached £583m in November, according to the Investment Association, the fund industry trade body – the first time they were positive all year.

During the rest of 2016, supposedly more defensive areas – notably absolute return funds – proved popular while equity funds were largely shunned.

“We saw positive flows into UK equities for the first time in 2016, which helped November to record the second highest monthly inflow of the year. The long period of uncertainty global markets have faced through the US election cycle also came to an end with Donald Trump’s unexpected win,” said Chris Cummings, chief executive of the Investment Association.

Global funds proved to be most popular among equity investors, but UK equity funds also recorded their first positive monthly flow of the year.

UK equity funds account for 22% of total industry funds under management and 40% of equity funds under management.

Fixed income funds, on the other hand, experienced net outflows for the first time since February.

Tracker funds also attracted a significant amount of investor money – £1.2bn, the second highest monthly inflow on record.

Jason Hollands, managing director of Tilney Bestinvest, the fund broker, said: “By some accounts 2016 was the worst year for equity fund flows since 2008, the height of the financial crisis. Ironically, however, 2016 proved to be a year of strong returns for equity markets, in particular for sterling-based investors as a result of the weakening pound. Conversely, many absolute return funds disappointed in 2016.”

Absolute return funds panned for being too risky

He added: “A month’s better figures for equities is of course not the same thing as a stampede into the markets either. Yet the art of successful investing is to buy low, sell high, not the other way round.

“Sentiment has certainly swung aggressively from fear to hope and while there are a number of good reasons to argue that the good time for equities might roll-on for a while yet, including rising inflation flushing cash into riskier assets, a possible pick up in company share buybacks and a boost to UK dividends from overseas earnings being converted into weaker pounds, there are also clear risks in getting swept up by market euphoria.”

He cites share valuations being “pretty rich”, especially US equities which are expensive on most measures.

“UK investors getting pumped up on Trump-mania should reflect carefully on the wisdom of using their much depleted pounds to invest heavily in expensive dollar assets at the current exchange rate,” Hollands said.

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