Overseas funds increase market share as sales plunge 40%

UK investors piled into overseas funds at record levels in 2011, although net retail sales dropped by almost 40% according to the latest data from the Investment Management Association (IMA).

IMA’s end of year report shows that overseas funds bucked the broad downward trend, reporting net retail sales of £1.7 billion, the highest level since records began in 2007.

The industry as a whole shrank by 2.5% over the year to £571 billion assets under management, while retail sales dropped by 38.5% to £18 billion. But non-UK domiciled funds now make up a 5.4% of the market, compared to 3.7% only four years ago.

‘2011 was a year of two halves. The first six months saw a continuation of the very strong sales of 2009 and 2010, but investors turned much more cautious in the second half of the year, perhaps unsettled by the eurozone crisis,’ said Richard Saunders (pictured), chief executive of the IMA.

Other shifts included outflows from equity funds in the second half in 2011 into bonds and balanced funds, which at £5.6 billion in net retail sales was the most sought after asset class.

Out of the IMA sectors, Cautious Managed was the highest selling over the year recording inflows of £3.4 billion.

Strategic Bonds came second, but the drop from last year was less pronounced after it attracted £2.8 billion compared to 2010’s £2.9 billion.

The Global sector jumped up the table from sixth place in 2010 to the third most popular in 2011 with a 15% increase in retail sales to hit £2.2 billion last year.

The least loved sector was, perhaps not surprisingly given the sovereign debt crisis, Europe excluding UK with £679 million in outflows. Asia Pacific excluding Japan was also unpopular with a £320 million outflow and European Smaller Companies which lost £319 million.

At the distribution end, the 12 fund platforms reporting to the IMA increased their market share as retail sales totalled £43.4 billion in 2011, accounting for 41% of total gross retail sales and up from 36% in 2010.