The two equity fund regions investors are buying

Retail investors remain bullish, despite a strong showing over the past 13 months for equity markets. 

Following the strong showing by global markets over the past year, some professional investors are looking down rather than up, but retail investors remain bullish.  

The latest figures from the Investment Association (IA) show that in March £1.1 billion was invested in equity funds compared to £296 million a month earlier.

There was also increased appetite for other asset classes. Over the month, £4.4 billion was invested in all funds versus £2.4 billion in February. In contrast, in March 2020 when markets were highly volatile, £9.7 billion was withdrawn by investors.  

Mixed-asset funds were the best-selling asset class, with £1.9 billion invested, followed by equity funds and fixed-income funds, which received £1 billion of inflows.

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Equity funds have now posted inflows for six consecutive months. November’s vaccine announcements were warmly welcomed by investors and led to £4.1 billion being invested that month and £2.6 billion in December.

In April, while demand remained high for equity funds, just two fund regions accounted for all the inflows in terms of regions. Global funds took the lion's share, with £1.8 billion of inflows. This fund sector has been the best-selling sector among retail investors over the past three years, with one trend being UK investors reducing exposure to their home market and seeking greater levels of diversification globally.

But there are signs that UK investors are warming to UK funds, with April’s data supporting that as UK funds received inflows of £114 million. In terms of sectors, UK All Companies and UK Smaller Companies saw £472 million and £217 million invested. UK Equity Income funds, however, continued to be out of favour. A total of £575 million was withdrawn from the sector, which marks the 10th consecutive month of outflows.

Research from interactive investor found that fund and investment trust investors who dipped their toes back into UK waters during November, are likely to have been rewarded over the last six months – on average at least.

The Association of Investment Companies’ investment trust UK All Companies sector is up 48% and the equivalent IA UK All Companies sector is up 31% between 1 November 2020 – 1 May 2021. The AIC UK Equity Income investment trust sector is up 42%, while the IA fund equivalent sector is up 32%.

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During this period, the three most popular UK funds on the ii platform were MI Chelverton UK Equity Growth, Premier Miton UK Smaller Companies and Marlborough Nano-Cap Growth.

When it comes to investment trusts, City of London (LSE:CTY) andFinsbury Growth & Income (LSE:FGT) were the bestsellers among UK trusts.

In March, City of London, one of interactive investor’s Super 60 funds, was the second most-popular trust in terms of the number of purchases during that month.

All other equity regions saw outflows in March, according to the IA statistics. North America funds saw £1 billion withdrawn, Europe funds lost £421 million and Asia and Japan funds posted respective outflows of £99 million and £86 million.

While the Asia region was not in demand, there was appetite for global emerging market funds, with the sector receiving an inflow of £298 million. Global emerging market funds are classified as global by region by the IA.  

Chris Cummings, chief executive of the IA, says: “The beginning of spring saw the thawing of investor sentiment towards UK companies following the successful roll-out of the coronavirus vaccine and broader growth in business confidence. With confidence returning to the market, savers invested £217 million into smaller UK companies, but also put £472 million into funds in the UK All Companies sector, typically invested in medium to large companies listed on the FTSE – the first such inflow in six months.”