Lockdown Spurs £10B Flow From UK Investment Funds

By Lucia Osborne-Crowley
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Law360, London (May 7, 2020, 2:56 PM BST) -- British retail investment funds were hit by a record net £10 billion ($12.3 billion) drain in March as investors reacted to the lockdown measures associated with the COVID-19 outbreak, a body representing the sector said Thursday.

The Investment Association, a trade group representing fund managers, said that retail funds in the U.K. saw a net flow out of £10 billion in March as the economy started to feel the hit from the coronavirus crisis. Just £1 billion left the funds in March 2019.

Chris Cummings, chief executive of the Investment Association, said this represents the fastest switch to a bear market — one experiencing prolonged price slumps — in history.

"The introduction of global lockdown measures designed to fight coronavirus held significant sway over the fund market in March," Cummings said.

The body said that fixed income funds — those with secure bonds such as Treasury or municipal bonds — were hit the hardest, with a net drain of £7.4 billion in March. But equity funds saw money come in, with retail sales of £747 million.

The best-performing fund group was the short-term money market — funds that invest in easily-accessible or liquid assets, such as cash — with net retail sales of £1.7 billion.

"Investors generally avoided taking money out of equity funds at low valuations. Instead, the focus was on bond funds as portfolios were re-balanced and some sought safety in cash," Cummings said.

The body said that responsible investment funds, which have a focus on assets and investments with a positive environmental or social impact, remained "resilient" in March, with £113 million in net retail sales.

Laura Suter, personal finance analyst at investment platform AJ Bell, said the record flow of money out of funds was "unsurprising."

"March was a hairy month for investors, with the FTSE 100 and S&P 500 both falling 13%, while the FTSE 250 index fell by 22%," Suter said. "Fund investors fared little better, with 96% of the funds in the Investment Association universe handing investors a loss in the month."

"With this as the backdrop it's unsurprising that investors ditched funds." she added.

European markets also suffered large movements of money out in March as the lockdown hit, with a total drain of £240 million. Globally, net outflows were £1.3 billion.

Cummings said the "extraordinary scale of central bank interventions" helped markets to rebound from the worst effects of the lockdown, and is "likely to help investors' confidence in April."

The Bank of England's monetary policy committee announced a rate drop for bank refinancing at 0.1% — the lowest-ever level — in March to encourage lending.

The central bank also announced on Thursday that British banks have until June 2022 to publicly disclose their plans for winding down without a taxpayer handout if they go bust.

--Additional reporting by Najiyya Budaly. Editing by Ed Harris.

For a reprint of this article, please contact reprints@law360.com.

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