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Brexit prompts £1 billion outflow from retail funds

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  • Retail investors withdrew £1 billion from investment funds in July, according to data released by The Investment Association today.
  • Net outflows from UK All Companies funds reached £917 million, up from £581 million in June.
  • Net outflows from the property sector fell to £792 million, down from £1.5 billion in June.

The withdrawal was significantly improved on June’s record £3.5 billion outflow, though is still high by historical standards. For instance during the worst month of the financial crisis £780 million was withdrawn from investment funds, though total assets under management have double since then, so in percentage terms last month’s outflows were smaller. However combined with June’s huge outflow, the statistics show that the referendum prompted a big exodus from investment funds, both before and after the event. Over the same period, rising markets have nonetheless propelled total funds under management to a record high of £989 billion. 

Both UK and European equity sectors saw bigger withdrawals than in June. Net outflows from UK All Companies funds reached £917 million, up from £581 million in June. Net outflows from European (excluding UK) funds reached £778 million, up slightly from £754 million in June. Collectively equity funds from all regions funds saw £2.2 billion of net outflows, down from £2.8 billion in June. There was a big inflow into bond funds over the month, which helped balance the books somewhat; £1.1 billion poured into fixed interest funds. Targeted absolute return funds also saw net inflows of £464 million. 

Net outflows from the property sector fell to £792 million, down from £1.5 billion in June, hardly surprising given so many funds in the sector have suspended trading. Laith Khalaf, Senior Analyst, Hargreaves Lansdown: ‘In the aftermath of the Brexit vote, investors fled risk and bought safety. The pace of withdrawals moderated from June, largely down to substantial inflows into bond funds and the trading suspension imposed by much of the property sector, which put a lid on redemptions. The irony is that despite large outflows from equities, rising markets have nonetheless propelled total funds under management to a record high of almost a trillion pounds. 

There was extremely negative sentiment towards markets in the immediate wake of the referendum, though the continued strong performance of stocks, combined with the Bank of England’s stimulus package, is likely to result in a bit more positivity in August. While large sums have clearly been withdrawn from equity funds, the yields on offer from bonds and cash are pretty crummy right now, and for long term investors the stock market at least gives them a fighting chance of beating inflation.’

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