Corporate bonds fall out of favour

Corporate bond flows suffered their first net outflows in nearly a year, as falling yields in the sector drove investors to look elsewhere for income.

In a sharp reversal of sentiment, the Investment Management Association (IMA) reported an outflow of £11.8m for the sterling-based corporate bond sector in October. In the 10 months leading up to last August, the sector was the most popular on offer.

Analysts said that falling yields in the corporate bond sector were likely to be responsible for the shift in investor sentiment.

Retail property funds, which yield 6 per cent or more, were the highest-
selling sector in October.

Net retail sales of IMA property funds came to £367.6m in October, which was their best performance since May 2007. The renewal of interest in the property sector follows a long period of apathy in the wake of the downturn in the commercial and residential markets. In November and December of last year, sales of property funds lagged all other IMA sectors.

Sales of individual savings accounts (ISAs) on a gross basis, which amounted to £965m, hit an October record as individuals aged over 50 took advantage of their new ISA allowance, according to the IMA. At the start of October, the annual limit was raised from £7,200 to £10,200 for those over 50.

“ISA sales are clearly heading for their best year since 2002,” said Richard Saunders, chief executive of the IMA.

Total retail sales of funds in the year until the end of October, across all IMA sectors, of £21.1bn on a net basis were also headed for record inflows with the year-to-date figures even surpassing net sales of retail funds in 2000, the best year on record thus far, according to the IMA.

The swell of interest in funds in October could be attributed to investors’ renewed confidence in the markets and the poor deposit rates on offer at high street banks, according to Justine Fearns, investments research manager with AWD Chase de Vere.