But has broader sentiment now caught up?
The UK’s Investment Association (IA) statistics for May show £230m ($296m, €260m) was invested in the IA Sterling Strategic Bond sector, while UK equity funds experienced a net retail outflow of £479m. The UK All Companies sector saw outflows of £532.1m, while UK equity income lost £23.1m.
Nexus IFA director Kerry Nelson says this could signal a shift from equities to bonds.
“You will find that all sort of investors from DFMs to hedge funds have been doing this for a while, with 20% plus in their portfolios in cash. These figures may show the wider audience catching up,” she said.
Looking at the UK, Nelson added: “There is no political stability in our market. It has taken 12 months for everyone to realise we have had a false sense of euphoria.
“We took a decision about three months ago to reposition our portfolios completely, with quite a conservative stance. We may miss out a little bit, but that is a price worth paying.
“It is going to be a very volatile period – an eventful couple of years.
“However, we wouldn’t come out of equity income. It has always been a stalwart and we would discourage a mass sale and take some profits, because that could be your exposure to the UK. It is all about the total return.”
No major change yet
Matthew Hoggarth, an investment analyst at Thesis Asset Management, said inflows to equities were slower in May than in March and April, but were still above the average over the last six months.
“Fixed interest funds did see a higher inflow in May than they had in April, when the Sterling Corporate Bond sector saw a net outflow. The overall figure for May isn’t massively different from the inflows in February and March though.
“We see both equities and bonds as quite fully valued. The difference is that bonds have more asymmetrical prospects.
“Yields are low and further capital gains are limited, however losses could be significant if interest rates rise substantially. Sovereign yields have been very low, credit spreads are at historically tight levels and there is just very little meat left on the bone.
“Expectations of tighter monetary policy following recent comments from central bankers have raised yields, but not by enough to tempt us to increase the bond allocations in our portfolios.
“Meanwhile equities are certainly not cheap, but for investors who can stomach the potential for setbacks in the short to medium term, they can offer more attractive dividend yields together with the prospect of long-term capital growth,” Hoggarth said.
