In early May, the Financial Times reported that UK retail investors had already withdrawn £7.1bn from investment funds in the first three months of the year. This sum, say the Investment Association, represents the highest level of net outflows from investment funds since Q4 2018.
But why is this happening?
Inflation and interest rates
Between January and March, the rate at which money was withdrawn from investment funds increased rapidly. Industry experts suggest that this was due in no small part to rises in both inflation and interest rates – as well as the rapidly deteriorating situation in Ukraine.
The conflict has served to increase inflationary pressures in the UK – and if inflation continues to rise, it is likely that interest rates will too, spelling more bad news for investment funds.
The fall in capital held in investment funds tied in with this year’s ISA investment deadline. The Investment Association’s Chief Executive, Chris Cummings, suggested that the decreasing attractiveness of investment funds came at the right time to transfer those funds to make the most of ISA allowances before the April 5th deadline.
In difficult times, some investors will look to transfer their funds to assets that are seen as safer, rather than riskier, options. Emma Wall, Hargreaves Lansdown’s Head of Investment Analysis, states in the FT article that, “while many investors took the opportunity to take speculative bets, many chose to take their money off the table and turn to the perceived safe havens of cash and gold”.
Have you withdrawn money from investment funds in 2022? If so, join the discussion on LinkedIn and let us know why!
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