Return to risk
The latest figures from the Investment Management Association (IMA) show that equities have outsold fixed interest securities for the first time in twelve months.
Publishing its monthly investment fund statistics for September 2012, the IMA also revealed that the Absolute Return fund sector was the most popular last month, with £193m of net retail sales.
Despite net outflows in August, net retail sales were over £1bn in September, signalling a return to risk by investors.
Whilst equity funds were overall more popular than fixed interest, UK growth funds experienced a net outflow with global equity funds taking the lion’s share of net retail sales in the equity space.
We believe that this return to risk is the result of a combination of factors.
Many investors are showing concerns about the valuations of fixed interest securities. Gilts in particular are starting to represent a bubble, with yields bumping along near historic lows and some indications that the Bank of England will not support quantitative easing to the same extent as before.
Whilst corporate bonds can represent better value in the current climate, there are some concerns that exposure to the still fragile banking sector in this asset class risks derailing returns in the future.
Equity markets look generally less nervous than they have done in recent months.
The eurozone sovereign debt crisis remains unresolved, yet investors seem prepared to expose their portfolios to greater degrees of risk as investor sentiment has shifted and markets have risen in value since the end of the summer.
The prevalence of absolute return funds in the IMA investment fund statistics for September is a worrying indication that many investors want exposure to risk assets but are not yet prepared to take the full risks.
Our criticism of absolute return funds is well documented and we believe that many investors are being misled by the labelling of these funds, which to date have rarely delivered on their objectives.
Instead of absolute returns, investors in these funds are more likely to see high charges, inconsistent performance and opaque portfolios. Put simply, they are not worth the risk.
We look forward to seeing the next release of IMA investment fund statistics to understand whether September was an anomaly or a genuine return to risk as investors start to shun the apparent caution which has dominated sentiment over the past twelve months.
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