UK bonds bounce back in June as equity funds lose out
Bonds are back in favour with UK investors but equities have continued to struggle amid ongoing political uncertainty.
£2.4bn flowed into bonds during June – taking this year’s total inflows to almost £6bn – according to figures released by the Investment Association (IA). This included net retail sales of £1.1bn for UK Strategic Bond funds – the largest inflows since November 2017.
Net retail sales experienced a third consecutive month of inflows, as savers ploughed £2.3bn into funds during the month. Net retail sales for Q2 have now topped £5.5bn.
Read more: Investment Association calls on industry to act on racial diversity
June was not so kind to equity funds, however, with net outflows totalling £744m. This marks a return to an ongoing trend for outflows after a brief blip in May saw the first inflows for two years.
IA chief executive Chris Cummings blamed high “political uncertainty” in the UK for equity funds’ poor performance.
AJ Bell analyst Laura Suter echoed Cummings’ assessment of the reasons behind equity’s decline. “Clearly the ongoing debate in June about who was going to be our next Prime Minister and the increased prospect of no-deal Brexit spooked investors, who once again shunned investing in the UK,” she said.
Suter added that it was unsurprising that investors were seeking out the “perceived ‘safe haven’ of bonds” amid this turmoil, but warned: “investors need to be careful as a significant number of bonds are now delivering negative yields, while others are failing to beat inflation, meaning that they need to be realistic about the returns they are likely to get.”