2014 saw new records set, with funds under management smashing through the £800 billion mark for the first time, according to statistics from the Investment Association (IA) published on Wednesday.
The value of funds under management rose to £834 billion, up from £771 billion in 2013 - an increase of 8.2%.
Net sales of funds to private investors also stood at their highest since 2010, at £20.8 billion.
Equities topped the asset class table with net retail sales of £8.2 billion, though this was down from £11.5 billion in 2013. Mixed-asset funds were the second most popular among purchasers, racking up retail sales worth £3.9 billion, while property funds came third on £3.8 billion, more than double the £1.5 billion they attracted in 2013.
UK fund popularity
In particular, UK funds saw an impressive boost in inflows, with £5.1 billion of net retail sales, compared with £2.9 billion in 2013. But that headline figure masks a deep rift in the UK fund market. While UK equity income was the most popular of all IA sectors, attracting over £6 billion, UK all companies was the worst-selling, with net outflows of £1.2 billion.
"The success of UK equity income funds in 2014 comes down to the ongoing hunt for yield amongst income investors, and of course to one of the biggest retail fund launches ever, in the form of Woodford Equity Income," comments Laith Khalaf, senior analyst at Hargreaves Lansdown.
Woodford's fund topped the most-bought list on our sister website Interactive Investor for the fifth consecutive month in December.
Property has also had a storming year, pushing up the sector table to second place behind UK equity income. The mixed investment 40-85% and 20-60% shares sectors came third and fourth, on just over £2 billion of net retail sales each, with absolute returns - ranked second in 2013 - slipping to fifth.
"I’m unsurprised that property funds attracted heavy investment in an income-starved environment, while the ongoing popularity of multi-asset funds reflects uncertain markets and the ability of these funds to smooth returns,' comments Tom Stevenson, investment director at Fidelity Personal Investing.
"We expect more of the same [growth from the latter] in 2015, given the glut of multi-asset funds out there looking to hoover up pension monies when the new freedoms are introduced in April," observes Khalaf.
"These funds operate a wide and flexible asset allocation, which is attractive in principle. However asset allocation is more of an art than a science, and even the best practitioners can get it badly wrong. We would therefore suggest investors ensure that the fund manager they are investing with has a long and consistent record, and hasn't just set up shop," he adds.
In regional terms, in stark contrast to the UK, European and Asian funds saw big falls in the value of retail fund sales compared with 2013 - down from £2.1 billion to £156 million, and from £739 million to just £54 million respectively. However, only North American funds actually suffered an overall outflow of retail cash, losing £443 million over the year.
That seems anomalous to Stevenson. "A degree of home bias is understandable, but I am surprised that investors appeared to shun the US stock market last year when it continued to lead the developed market recovery. Despite America's higher valuations on average, this remains my preferred equity market."
Interestingly, there was strong growth in the value of tracker funds purchased in 2014, taking them to their highest ever level of funds under management at £93.2 billion. That's an increase of almost a quarter (24%) on figures for 2013.
Index trackers increased their market share from under 10% to 11.2% as a consequence. Again, that popularity is reflected in the prominence of trackers on the Interactive Investor website buy list: three featured in II's list of the top 10 funds bought in December.
"The tracker fund revolution goes from strength to strength and we expect this to continue as investors increasingly opt either for low-cost passive funds, or truly active funds which cost a bit more," says Khalaf.
This article was written for our sister website Money Observer