Investments in funds reached record levels in April as investors rushed to take advantage of both their Isa and pension allowances at the end of the last tax year and the start of the new one.
The latest fund sales data available from the Investment Association shows that net retail sales reached a new monthly record of £4.9 billion in April. For pension fund sales this was three times higher than the same time last year and 50% higher for individual savings accounts (Isas) - spurred most likely by the new, higher allowance of £20,000 a year. Last year’s sales were depressed by the then upcoming EU referendum - retail investors withdrew £635 million from equity funds in April 2016 .
Commenting on the results, Laith Khalaf, senior analyst at Hargreaves Lansdown says: “‘Investors stashed record amounts into funds around the end of the tax year, as they looked to Isas and pensions to protect their savings from the taxman. Fund sales in these tax shelters are sharply up on last year, so clearly the forthcoming election is not holding back investor activity in the same way the EU referendum did.
“A higher Isa allowance in this tax year will have helped to boost inflows too, along with the government’s decision to slash the dividend allowance, which raises the stakes for income-seekers holding investments outside of a tax shelter.
‘Woodford effect’ boosts sales
The most popular asset class for investors was equity funds, with £2 billion invested, the second highest month on record. The specialist fund sector was the best-selling sector, with sales reaching £678 million, thanks in the main to a high-profile launch from stellar fund manager, Neil Woodford. In March the sector was ranked seventh, only achieving sales of £204m.
Mr Khalaf adds: “We also detect a strong “Woodford effect” in these record fund sales, which shows the usually inconspicuous Specialist sector had a bumper month in April, thanks to the launch of the new Woodford Income Focus fund.
Despite the FTSE 100, standing at over 7,500, Mr Khalaf says there is every reason for investors to remain positive. “The Footsie may be at a record high, but if you factor in the level of companies’ earnings, the UK stock market is nowhere near as expensive as it was at the turn of the millennium, when the Footsie almost touched on 7,000. That’s reinforced when you look across at the returns on offer from bonds and cash.”
He adds: “It’s also worth bearing in mind that while today the FTSE 100 is still less than 10% above its 1999 peak, the index doesn’t take account of dividends, which are a key driver of returns for stock market investors. Of course, in the short term the Footsie can turn in either direction, but the case for long term money being invested in the stock market is still strong.”