You can read our report on the latest IA statistics here: Tracker fund sales hit all-time record of £5.7bn in Q2
The IA figures show what tracker fund inflows have hit an all-time high of £5.7bn, suggesting investors are finally getting the message about low cost funds.
While I don’t believe that tracker funds are the answer to every investment problem it’s clear they are growing in popularity with investors who may, at last, be getting the message that keeping down charges is a wise move.
The IA figures also show that bond fund sales have soared at the same time as equity fund sales have slipped. It’s highly likely nervous investors are dumping equity funds for bonds, a classic flight from perceived risk.
The experts will read into this that investors are flocking to safety. However what I see is just another example of the herd instinct which often harms investors who are allowing short term fears to dominate their long term investment planning.
Aficionados of behavioural finance will spot the same themes over and over again. Investors fear short term political instability or recession or market volatility or, frankly, whatever spooks them this time. They dump stocks and flee towards what they see as safer pastures.
It’s the opposite of long term sensible, risk-based asset allocation. Interestingly the IA says that only a third of funds are sold through advisers. For the un-advised rest, it’s a case running to safety whenever the klaxon sounds.
I often smile when I listen to financial reports on the radio where market volatility if cited as the reason investors are dumping stocks or funds. I always ask myself when was that period when markets were not volatile? In the short term they nearly always are.
The fact is that most retail investors have little real understanding of long term investing and balanced portfolio management and why should they? It’s not something taught in school. Because of this we see the same patterns repeated over and over. Ultimately this cannot be good for small investors or, in the long term, the fund sector.
I’ve often said that the fund sector has yet to find a way to offer attractive, low cost, balanced funds to everyday investors and that until it does things will not change. It is ultimately a shame that too few investors can afford to get the help of an experienced adviser who can help them avoid the pitfalls that so many millions make over and over again.
• I’m just back from a two week break in sunny Malaysia, a rapidly developing nation in south east Asia. I was impressed by the excellent quality local English-language newspaper which I read most days by the pool and even more impressed by their retirement supplement they ran one day. It included an incisive article from a local Financial Planner on the importance of risk assessment and not running out of money in retirement. It could have applied with just a few words changed to the UK. It reminded me that many of the financial issues facing UK pension savers are global, not just local.
Kevin O’Donnell is editor of Financial Planning Today and a financial journalist with 30 years experience. This topical comment on the Financial Planning news appears most weeks.