Brexit trouble sees £3.5bn withdrawn from UK funds
June saw £3.5 billion withdrawn from UK investment funds, according to figures released from the Investment Association today.
£1.4 billion of this was taken from the property sector, which resulted in some funds suspending trading at the time, while the rest came from equity funds (£2.8 billion) and Isas (£464 million).
These figures may not sound much given figures amounting to billions and even trillions being bandied about the news on a daily basis, until you compare them to figures touted in other recent significant economic events. For example, according to the Investment Association:
• In January 2008, as the worst financial crisis since the 1930s really started to bite, UK investors extracted £561 million from funds.
• In October 2008, after Lehman Brothers declared bankruptcy, investors withdrew £493 million.
There is about twice as much money under management now as there was back in 2008, but even weighted with that in mind today’s figures are significant.
What does this mean for the UK economy?
One thing to note is that even though this £3.5 billion number is pretty staggering, it makes up just 0.37% of total assets under management in the UK.
It’s also worth bearing in mind that as well as outflows, this turbulent time also saw inflows as investors looked for ‘safe’ places to put their money - fixed-income and money market funds saw money pumped in at £258 million and £157 million, respectively. People aren’t setting fire to their cash.
Nevertheless, the numbers speak volumes of the fear that has gripped a lot of investors, as Laith Khalaf, senior analyst at Hargreaves Lansdown says: “Clearly investors were rattled by the referendum… UK investors who withdrew from equity funds are probably regretting this decision in light of the performance of the stock market since the referendum, and that goes in spades for those who cashed in their ISA allowance, losing that tax shelter forever.”
Jason Hollands, managing director at Tilny Bestinvest adds: “While the economic impact of the Brexit vote is unclear at this stage, alarmist claims that it would prompt a market meltdown have proven wrong. Fears of the vote posing a systemic risk to capital markets have abated, the FTSE 100 is trading higher in Sterling terms than it was prior to the vote and the more domestically skewed FTSE 250 Index has recovered from the initial knee jerk sell-off.
“Of course the really interesting data will come next month when we find out what happened in July, the month after the vote.”
So it seems to be business as usual, with the UK economy volatile but resilient - to the extent that Aberdeen Asset Management has cut the levy on its UK property fund to the same level as it was pre-referendum.
The term is interchangeable with stock exchange, and is a market that deals in securities where market forces determine the price of securities traded. Stockmarket can refer to a specific exchange in a specific country (such as the London Stock Exchange) or the combined global stockmarkets as a single entity. The first stockmarket was established in Amsterdam in 1602 and the first British stock exchange was founded in 1698.
There are limits to how much you can invest in any tax year. For 2011/12, the limit is £10,680. Of that, the maximum you can invest in cash is £5,340 and the balance of £5,340 can be invested in shares (individual company shares or investment funds). If you don’t take the cash ISA allowance, you can invest up to £10,680 into a stocks and shares ISA.
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.
A person (or business) unable to pay the debts it owes creditors can either volunteer or be forced into bankruptcy – a legal proceeding where an insolvent person can be relieved of their financial obligations – but loses control over their bank accounts. Bankruptcy is not a soft option. Although it may wipe the financial slate clean, it is extremely harmful to a person’s credit rating (it will stay on your credit record for six years) and will adversely affect your future dealings with financial institutions. Bankruptcy costs £600 paid upfront.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.