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End of tax year prompts record IA fund sales

  • End of tax year prompts record fund sales, according to Investment Association data
  • 'Woodford effect' boosts fund flows
  • Cash funds are popular too

April saw record net inflows into investment funds according to Investment Association data released today. The period in question includes both the end of the last tax year and the beginning of this one, which is a busy period for investor activity, as savers seek to maximise their pension and ISA allowances.

Net fund sales were 50% higher in ISAs and three times higher in pensions than in April 2016. ISA sales were no doubt helped by the ISA allowance rising to £20,000 in this tax year, and last year’s IA figures were almost certainly held back by the impending EU referendum.

Equity funds were the most popular asset class, posting the second highest sales on record. This was in part driven by sales in the Specialist sector, which topped the table for fund sector inflows at £678 million. This can largely be attributed to the launch of the Woodford Income Focus fund which sits in this sector.

Despite the rise in fund flows some bearishness was on show, with the Targeted Absolute Return sector posting the second highest sales behind the Specialist sector. Likewise the Short Term Money Market sector also made the top 5 most popular sectors.

Laith Khalaf, Senior Analyst, Hargreaves Lansdown:

"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.

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.

There is both bullishness and bearishness evident in fund buyers’ decisions, with equity funds and absolute return funds attracting strong inflows. Money market funds also saw big inflows, though investors may have been using these as a cash park to secure their end of year ISA allowance, while giving themselves a bit of time to make an investment decision.

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. 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."