UK fund industry sees first net outflow since October 2008

UK-authorised funds registered a net outflow of £463 million in January, the Investment Association (IA) reports.

This is the first time that net sales across all asset classes and sectors have been negative since October 2008, when the collapse of US bank Lehman Brothers sent global markets tumbling and sparked the worst financial crisis since the 1930s.

The loss also pushed total assets under management at the IA down to £842 billion, £10 billion lower than the £862 billion recorded in January 2015.

The outflow marks one of the worst opening months for global stock markets in recent memory, as tumbling commodity prices and renewed fears over slowing economic growth in China prompted widespread sell-offs.

RISK-ON, RISK-OFF THEME DOMINATES

Underlining the risk-off investor mood, the IA says that the only asset class to register a net inflow in January was money market, which is dominated by cash and very low-risk bond funds and saw net sales of £24 million over the month.

The worst-selling asset class was fixed income, which saw a net outflow of £267 million - the highest level since September 2015 - as investors feared potential defaults across the corporate bond space.

Mixed asset funds saw their first negative net outflow since July 2008, shedding £157 million in January, while property funds also suffered a net loss of £27 million - the first time since August 2011.

Guy Sears, interim chief executive of the IA, says: 'Risk-on, risk-off was the theme in financial markets during January, which led to increased volatility. Unsurprisingly, this caused some investors to reduce their holdings in investment funds.

'Fixed income and mixed asset funds were most affected by outflows, but it is important to note that this was the first net outflow for mixed asset funds in over a year.'

RECORD GLOBAL EQUITY OUTFLOW

On a regional level, global equity funds witnessed their highest outflow on record in January, as the sector registered a net loss of £272 million.

This was followed by Asian equity funds, which lost £200 million; and UK equity funds, which shed £158 million.

Europe offered a 'glimmer of hope', with European equity funds registering a net inflow of £291 million in January as the European Central Bank attempts to battle deflation with its €1.1 trillion (£857 billion) quantitative easing programme.

North American and Japanese equity funds also saw net inflows of £230 million and £51 million respectively.

Tracker funds registered a net inflow of £543 million in January, pushing total funds under management to £105 billion, while ethical funds also saw positive sales of £51 million.

Commenting on the data, Laith Khalaf, senior analyst at Hargreaves Lansdown warns investors not to overeact: 'We shouldn’t read too much into one month’s figures, particularly in January when tax bills have to be paid and money is thin on the ground after the annual Christmas splurge.

'We will have to wait and see if this is the start of a trend or simply a seasonal blip compounded by volatile markets.'

He adds: 'There is no shortage of bad news around right now; whether it’s the EU referendum, a Chinese slowdown, a bond bubble or the Greek debt crisis, but if you invest when everything is smelling of roses, chances are you are paying a premium for the comfort of doing so.'

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