Britain’s nervous investors pulled record levels of money from funds as markets approached all-time highs in January, according to figures from the Investment Association.
Retail and institutional investors combined withdrew a net £4.7 billion ($7.26b) from funds based in the UK last month, the highest amount since the fund group trade body started recording the figures in 1992, BBC reported.
Institutional investors – such as big pension funds – pulled a record £5 billion, more than net outflows during the whole of 2008 as the financial crisis took hold.
While net retail sales represented a £320 million inflow into funds, the figure was down heavily on December’s £1.7 billion sales, and the lowest level since August 2012 when eurozone break-up fears last gripped the markets.
Wary of Markets
‘With major developed stock market indices reaching record levels and the FTSE 100 this week surpassing the peak previously seen at the height of the dot com bubble in 1999, investors appear to be nervous about putting new cash into the markets,’ said Jason Hollands, managing director of online stock broker Tilney Bestinvest.
He added that investors were wary of the markets ‘at a time when a number of high profile businesses have reported earnings setbacks, the UK faces an uncertain outcome from May’s general election and the news headlines have been dominated by a potential Greek exit from the eurozone, terrorism and the conflict in Ukraine’.
Ironically, investors missed out on a strong month of returns, as global markets rallied in January, with the FTSE World index up 2.7% over the period.
Laith Khalaf, senior analyst at Hargreaves Lansdown, suggested the sale of pensioner bonds last month could be behind some of the decline in retail sales.
‘Two words spring to mind when considering the sudden slump in fund sales – pensioner bonds,’ he said. ‘There is no smoking gun, but it’s a fair guess that the market-beating National Savings & Investments (NS&I) bonds have attracted some of the cash that might otherwise have been invested,’ he said.
Pensioner bonds were launched on 15 January and sparked so much demand from savers that NS&I’s website crashed. Two bonds are on offer for the over-65s: a one-year bond that pays an annual interest of 2.8% before tax, and a three-year bond paying 4% before tax.
Oil Price to Blame?
Investment by British companies slowed in the final quarter of 2014, official data showed Thursday, as the fall in oil prices drove the North Sea extraction industry to cut down spending on infrastructure.
Business investment shrank 1.4% compared with the third quarter, according to the Office for National Statistics, the second quarterly fall in a row and the biggest slump in more than five years. Year-over-year, growth was 2.1%, the slowest since early 2010.
The decrease was driven by the oil extraction industry in the North Sea reducing its investments in equipment such as oil platforms, the ONS said, as the ultralow price of commodities in the international markets is making their business less profitable.
Nevertheless, the second estimate of gross domestic product, released Thursday, confirmed the UK economy expanded a healthy 0.5% on a quarterly basis or at an annualized rate of 2.2% in the three months to December. In 2014 as a whole, British GDP grew 2.6%, matching the average forecast of economists polled by The Wall Street Journal, which expected data to be unrevised.
Even though these figures highlight the recovery cooled compared with earlier during the year, the UK still managed to outperform all other countries in the Group of Seven leading nations in 2014, with economists expecting Britain to have a bumper start to 2015.
