Fund sales in January reached a record-breaking height of £1.8 billion, according to figures released by the Investment Management Association (IMA) today. In the highest selling January on record, equities proved more popular than bonds, with investors favouring global, Asian and US sectors over the UK and Europe.
Isa sales for January hit £174 million, a massive increase compared to last January’s paltry figure of £2 million.
With the uncertainty surrounding the outcome of the general election, investors seem keen to take advantage of Isa tax breaks, before a change in government or economic policy affects them.
Malcolm Cuthbert, partner at independent financial advisers Killik & Co, says: ‘There is much that can be done to prepare for the tough times ahead by making your money work harder through smart planning and taking advantage of the tax benefits available in Isas, as well as in pensions.’
Sectors popular with Isa investors in January differed significantly from those favoured overall, suggesting individuals may look for something different with their Isa portfolio.
Cautious managed was the top choice for Isa investors, according to the IMA, with £50 million of Isa money flowing into that sector.
Another hot Isa sector was UK equity income and growth, which showed net retail sales of £62.5 million, £16 million coming from Isas.
However, Ben Yearsley, investment manager at Hargreaves Lansdown, does not believe investors choose different holdings for their Isas and non-Isa portfolios. ‘For most people there is not a split between Isa and non-Isa investment. Isas are more tax efficient for those seeking income, but also, UK equity income and growth is dominated by Neil Woodford [star fund manager with Invesco Perpetual] and he proves a draw for people anyway.’
Meanwhile for investors favouring the cautious managed sector, whether inside or outside an Isa wrapper, an asset management firm today spoke out about the importance of researching the funds in that sector before purchasing.
Mike Parsons, head of UK retail sales at J.P. Morgan Asset Management, says: ‘We don’t believe screening for performance in the cautious managed sector is the best way of identifying funds. Picking the best performing fund in a rising market could well mean you are just buying the fund with the highest underlying risk.’
He adds: ‘We would urge investors to look further into the underlying characteristics of funds in this sector. Just because a fund is in the sector, doesn’t necessarily mean it fits an investor’s idea of “cautious”. A fund holding the maximum allowable allocation to equities of 60 per cent, might not fit the end investor’s attitude to risk.’
For more on Isas and the best ways to beat rising taxes and low interest rates, and ideas of what to invest in, look out for the Money Observer 2010 Isa supplement available with the March issue of the magazine, out now.