Global equity funds closed a torrid year on a record high as investors were buoyed by news of a vaccine rollout.
November saw savers invest a record £8.3bn, beating the previous record of £5.7bn net retail sales from September 2017, according to data from the Investment Association (IA).
With interest rates at almost zero investors turned to the equity market, spurred by vaccine developments and a Brexit deal. Equity funds were the best-selling asset class in November with £4.1bn in net retail sales.
“Equity funds rode the coronacoaster in 2020, but ended the year on a high as vaccine approvals raised the prospect of an escape from the pandemic,” Edward Glyn, head of global markets at Calastone told City A.M. “We saw fund inflows absolutely take off in the last few weeks of the year as a result.”
UK funds remained unloved with net retail outflows of £461m but there is hope that with a Brexit deal agreed prospects are looking up.
“With a trade agreement now in place, there is a strong possibility that UK equities become a lot more attractive and investors look to reduce their underweight,” Ryan Hughes, head of portfolios at AJ Bell told City A.M. “As a result we could certainly see the IA UK All Companies sector climb sharply up the league table from its recent position of large outflows.”
Confidence in 2021 dependent on fiscal support
But this optimism may not last for long as further lockdown restrictions start to be enforced amid a worrying surge in cases.
“Given the rocky start to 2021 with surging coronavirus cases, it remains to be seen whether investor confidence will continue into the new year,” IA chief executive Chris Cummings says.
“The key to confidence this year will be the continued belief that central banks will keep on providing the stimulus to economies around the world,” Hughes says. “With a Democrat in the White House and having control of the Senate, it certainly looks likely in the US while the Bank of England, the ECB and Bank of Japan have all indicated they are prepared to do more. With little alternative, this will likely keep the equity market supported.”
Investors go green
Responsible investment funds continue to attract cash with a new monthly high of £1.1bn net retail sales. Funds under management stood at £43bn as of the end of November, representing three per cent of the overall share of industry funds under management.
Appetite for ethical investing has grown in recent years with investors pressuring asset managers to be more transparent in their process.
The onset of the pandemic has only accelerated the shift to ESG-focused funds and as investors assess the resilience of companies post-pandemic, sustainability will become key factors.
“While some may see this a new trend, investors should remember that ethical investing has been around for decades and therefore look carefully at which managers have a heritage of investing in this space,” warns Hughes.