Why are investors flocking to fixed interest?

The latest Investment Management Association (IMA) monthly investment fund statistics for July 2012 show that investors are flocking to fixed interest securities.

Fixed income funds took over half the £903m of net retail sales into funds in July.

The highest selling sector in July was the Sterling Corporate Bond sector, with £218m of net retail sales.

As a result of these latest sales figures, fixed income funds have been the best selling sector for eight consecutive months.

Commenting on the latest figures, IMA chief executive Richard Saunders said:

“Investment in equity funds continues overall to be broadly neutral, but our analysis of net retail sales over the last 12 months shows an interesting pattern of investor preferences shifting towards global funds at the expense of the UK, North America and, especially, Europe.”

These figures always make for interesting reading, although no investor should base their asset allocation decisions on what others have previously done.

Investing in a single asset class, such as fixed interest securities, is a risky strategy.

At current valuations, there is an argument that Gilt and Corporate Bond funds are looking expensive. They could still offer value, but investors need to understand they come with downside potential as well.

Rather than invest in a single asset class, investors can benefit from risk reducing diversification by investing across the major asset classes, with an appropriate allocation based on individual goals and risk profiles.

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