Investment fund sales highest on record

Sales of investment funds were the highest on record last year as investors piled back into the stock market and sought out better returns than those available on bank and building society deposits.

Net retail sales hit £25.8bn in 2009, according to the Investment Management Association, compared with just £3.8bn of sales the previous year.

Corporate bond funds were the most popular with investors across the year, though sales tailed off in the final quarter as property funds attracted renewed attention.

Absolute return funds were the second most popular fund class in 2009 and the best selling sector in December, just ahead of property funds. Absolute return funds are a relatively recent phenomenon, often using derivatives to tap into investor demand for a return on capital in both positive and negative market conditions.

Demand for individual savings accounts (Isas), which has been on the wane, also returned in 2009 with sales at the highest level since 2001. The amount of money investors can put into an Isa went up in October for investors over 50 from £7,200 to £10,200.

“The industry has had a good year,” said Richard Saunders, chief executive of the Investment Management Association.

“Isas are a bellweather of what the investor in the street is doing. Investors have been staying away from the market since the end of the tech boom, but in 2009 they seem to have begun to dip their toe in the water.”

He suggested that low interest rates on bank and building society accounts were likely to be one main reason behind the surge in interest in investment funds.

“There’s a well attested phenomenon that in a recession people’s response is to save. Quite a lot of that has gone into funds in 2009 partly because of the relative unattractiveness of other savings,” he said.

The shift in the nation’s pension savings habits is also driving the figures. The fund management industry has benefited from the trend for companies to close their defined benefit schemes and switch to defined contribution schemes.

Investors are also continuing to diversify, the figures showed, with a gradual shift out of equities and into alternative asset classes. Equities still made up the majority of funds under management at the end of 2009 at 61 per cent. Ten years ago, equities comprised 83 per cent of total funds at the IMA.