Investors shun UK stocks but funds industry had record year

Investor appetite for UK equities continues to lag but funds industry still had one of its best years on record

  • Investors continue to shun UK stocks in favour of global equities, according to the Investment Association 
  • Despite the pandemic, retail fund sales jumped to £30.8bn last year 
  • Assets held by IA members grew 11% to £9.4trn in the UK by the end of 2020 

Cash held in funds investing in UK stocks has continued to fall as investors favoured global equities and bonds, according to a new report, despite a stellar year for the funds industry.

Assets in UK equities fell to a record low of 26 per cent by the end of 2020, according to new figures from trade body, the Investment Association (IA).

The fall is partly down to pandemic uncertainty and the effects of Brexit but also reflects a long-term trend of higher allocation to global equities and bond strategies.

Despite the pandemic, retail fund sales jumped to £30.8bn but investors are continuing to look abroad

Three quarters of equity assets are now invested overseas compared with just over 50 per cent a decade ago, while assets in overseas bonds are 55 per cent of all bond AUM in 2020.

Last year, net inflows into the IA Global sector hit £6.1billion, three times higher than the next highest selling region, North America.

Despite the crippling effects of the pandemic, the UK funds industry has enjoyed one of its best years, according to the IA’s latest Investment Management Survey.

Retail fund sales jumped to £30.8billion, making it the second highest year on record for net sales after 2017.

Despite steep falls in March 2020, total investor funds under management (FUM) reached a record £1.44trillion by the end of the year, up nine per cent from £1.32trillion in 2019.

Elsewhere, demand for greener investments has been a ‘standout development’ over the past year. Net retail sales into responsible investment funds reached £11.7billion, accounting for 38 per cent of total net retail sales.

‘Investor appetite for environmentally conscious funds has been building over recent years but the pandemic brought social concerns to the fore,’ the IA said.

The UK remains the second largest investment management centre in the world behind the US and leads in Europe with a market share of 37 per cent – larger than the combined total of France, Germany and Switzerland.

AUM held by IA members grew 11 per cent to £9.4 trillion in the UK by the end of 2020, helped by decisive actions by central banks.

‘The investment management industry demonstrated its long termism through the pandemic by supporting the companies it invests in. The swift action of the central banks supported the global economy and the industry rallied to the cause, injecting over £22bn into businesses to help them ride out the storm,’ said IA chief executive Chris Cummings.

The UK also continues to be an attractive hub for overseas investment. 

By the end of 2020, overseas client assets accounted for 44 per cent of total AUM, equivalent to £4.2trillion.

With the final transition out of the EU completed, the industry is well-set to build on its world class reputation which has already led to it managing £9.4trn of international clients’ funds,’ said Cummings.