Cash deposits surged to £13.1 billion last month
Investors pulled a record £10 billion out of funds during March after stock markets fell due to the coronavirus crisis.
Figures from the Investment Association (IA) show fixed income funds were the worst-hit asset class, suffering outflows of £7.4 billion in March. This is when the UK and countries across Europe began to go into lockdown.
However, UK equity funds saw inflows of £747 million in March, while all other equity regions experienced outflows.
Chris Cummings, chief executive of the Investment Association, says: “With the fastest switch to a bear market in history, the introduction of global lockdown measures designed to fight coronavirus held significant sway over the fund market in March, with a record £10 billion of retail savings flowing out of funds.”
Investors pulled £1.3 billion from global funds, with European markets suffering net outflows of £250 million. North America funds experienced net retail outflows of £256 million, while Asia funds saw a drain of £179 million.
The short-term money market was the top performing sector in March, with net retail flows of £1.7 billion.
Why has this happened?
Coronavirus has hit economies around the world, with the FTSE 100 and S&P 500 both tumbling to lows not seen since 1987.
These have started to recover, but this has been volatile.
“The extraordinary scale of central bank interventions in the second half of March saw market sentiment rebound, and is likely to help investors’ confidence in April,” says Cummings.
Laura Suter, personal finance analyst at investment platform AJ Bell, says the record outflow from funds was “unsurprising”.
She says: “March was a hairy month for investors with the FTSE 100 and S&P 500 both falling 13%, while the FTSE 250 index fell by 22%. Fund investors fared little better with 96% of the funds in the Investment Association universe handing investors a loss in the month.
“Investors left equity markets in their droves, with £1.1 billion pulled in the month, but fixed income markets were the biggest loser with £7.4 billion redeemed in March.”
Myron Jobson, personal finance campaigner at interactive investor (Moneywise’s parent company), says: “The realities of the Covid-19 pandemic and its impact on investments hit home in March following sharp falls in global stock markets in late February. Amid the storm, investors appear to have sought refuge in low risk assets, with short-term money market emerging as the bestselling IA sector in March.
“It is also interesting to see that UK equity funds were one of the flavours of the month of March, with net retail sales of £747 million. The dramatic downturn in the performance of such funds provided brave investors an opportunity to buy on the dip.”