Have fund investors been buying high and selling low?

Europe equity funds experienced net retail outflows of £303 million, while investors pulled £429 million out of UK funds in August.

UK retail investors have been ditching UK and Europe-focused investment funds in favour of both the North America and global sectors, according to the latest data from the Investment Association (IA).

Europe equity funds experienced net retail outflows of £303 million, while investors pulled £429 million out of UK funds in August this year. 

According to Chris Cummings, chef executive of the IA: ‘The uncertainty in the Brexit negotiations continued to be a key factor denting investor confidence in August, with funds experiencing the first retail outflows since the EU referendum result.’

At the same time, a year of disappointing economic performance, as well as continued concerns over Italy and its dispute with EU leaders, has dampened investors’ confidence in the continent.

These fears, notes Cummings, have seen retail investors instead attempt to diversify and manager their risk seemingly safer options, in terms of both region and asset class.

Mixed asset funds, seen as being able to offer risk diversification, were the best-selling asset class of all funds in August, posting net sales of £539 million. At the same time, funds classified as other, including volatility managed funds, saw net sales of £36 million. By contrast, equities as a whole experienced net outflows of £308 million.

Within equities, however, investors opted for both global focused and North America focused funds. The former saw net retail sales of £193 million, while North America funds netted sales of £98 million.

UK retail investors are not alone in selling Europe and buying Global and North America. The same pattern can be seen in Bank of America Merrill Lynch’s September Global Fund Manager Survey, in which managers reported upping their allocation to the US while trimming their Eurozone holdings, seeing the former as somewhat of a safe haven.

Similarly, data from interactive investor (our sister website) has shown, the most popular investment trusts over the past couple of months have been global or US technology focused, such as Scottish Mortgage, Edinburgh Worldwide or Allianz Technology.

Selling at low and buying at the peak?

There is a risk, however, that by selling out of depressed UK and Europe and buying up bullish America, investors are buying high and selling low.

Europe, for instance, may be about to turn a corner. According to Duncan Lamont, head of research and analytics at Schroders, Europe is better placed than valuations would suggest. He notes that a cyclical recovery is under way and there is room for profit margins to expand and support earnings and stock market returns.

Should Lamont prove to be right, selling now, at a time when European markets have recently reached new yearly lows, would be a mistake. At the same time, bearish views on Europe may offer investors a cheap entry point to the market.

At the same time, US equities are some of the most richly valued in the world. Those buying in now may be buying in at the top of the market, giving them a nasty shock when the current bull market (finally) turns. However, such warnings have been given regarding US equities for the past two years and, as of yet, the ‘party’ in US markets has continued unabated.

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