Investors have been forced to raid their investment pots to help tackle rising inflation, with latest data from the Investment Association revealing fund outflows hit an eye-watering £25.7bn last year. This also marks the worst year on record for fund outflows.
December 2022 marked the tenth consecutive month of net retail outflows, according to data from the Investment Association. It’s the first time a high annual outflow has been recorded; retail funds saw £4.2bn worth of sales even after the global financial crisis in 2008.
“It is no surprise to see investors turned off markets in 2022, a year of extreme economic and political turmoil,” says Emma Wall, head of investment analysis and research at Hargreaves Lansdown.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
What has caused investors to take money out investments?
Investors had to contend with double digit inflation – currently UK inflation is sitting at 10.5% – as well as a cost of living crisis driven by rising energy prices and record grocery price inflation.
The markets were also rocked in September following the mini-Budget announcement, which included a series of unfunded tax cuts that destabilised the economy and accelerated the property market’s slowdown.
The situation has since improved and in fact, the FTSE ended on a high last week following market sentiment that the UK recession may not be as bad as expected.
The worst-selling sector in December was UK All Companies, which saw outflows of £1bn.
But we “shouldn’t look at the past year in isolation, because it comes after a roller-coaster three years of social, emotional, economic and market turbulence – we are living in an age of uncertainty,” says Dzmitry Lipski, head of funds Research at interactive investor.
Which sectors performed better?
UK gilts were the Investment Association’s third best-selling sector in December 2022, recording net retail sales of £127m.
| Best selling investment association sectors | |
| Sector | Net retail sales |
| North America | £358m |
| Global | £237m |
| UK Gilts | £127m |
| Targeted Absolute Return | £107m |
| Global Equity Income | £98m |
Tracker funds also experienced inflows of £696m in December 2022, while responsible investment funds saw inflows of £9m.
What’s the outlook for UK retail funds in 2023?
Despite a dismal year, things already appear to be looking up. “2023 has got off to a more optimistic start, with the FTSE 100 flirting with record highs, and the US market being led by better-than-expected results from a number of the tech giants, and falling inflation,” says Wall.
Last Friday 3 February the FTSE 100 recorded hit an all time high, a sign that investors believe global inflation might be easing and central banks are nearing the end of their series of steep interest rate rises.
The blue-chip index has since fallen back, but its peak was “brief but significant, and particularly good news for investors in the UK’s blue-chip index,” says Richard Hunter, head of markets at interactive investor.
“There are no guarantees, but history shows us that the best years can often follow the worse,” says Lipski. “It’s so important to try to get out of the habit of buying high and selling low. One of the best ways to deal with volatile markets is to invest on a monthly basis, smoothing out some of the highs and lows in the price of shares.”
-
M&S shares shift from frumpy to fabulous as pre-tax profits are up by 56%M&S is performing strongly and has announced it will pay a dividend for the first time since the pandemic.
-
The rise and fall of Sam Bankman-Fried – the “boy wonder of crypto”
Why the fate of Sam Bankman-Fried reminds us to be wary of digital tokens and unregulated financial intermediaries.
-
UK wages grow at a record pace
The latest UK wages data will add pressure on the BoE to push interest rates even higher.
-
Trapped in a time of zombie government
It’s not just companies that are eking out an existence, says Max King. The state is in the twilight zone too.
-
America is in deep denial over debt
The downgrade in America’s credit rating was much criticised by the US government, says Alex Rankine. But was it a long time coming?
-
UK economy avoids stagnation with surprise growth
Gross domestic product increased by 0.2% in the second quarter and by 0.5% in June
-
Bank of England raises interest rates to 5.25%
The Bank has hiked rates from 5% to 5.25%, marking the 14th increase in a row. We explain what it means for savers and homeowners - and whether more rate rises are on the horizon
-
UK wage growth hits a record high
Stubborn inflation fuels wage growth, hitting a 20-year record high. But unemployment jumps
-
UK inflation remains at 8.7% ‒ what it means for your money
Inflation was unmoved at 8.7% in the 12 months to May. What does this ‘sticky’ rate of inflation mean for your money?
-
VICE bankruptcy: how did it happen?
Was the VICE bankruptcy inevitable? We look into how the once multibillion-dollar came crashing down.
