Top trends of 2020: Rollercoaster year sees investor confidence bounce back

Responsible investment and globally diversified equity and bond funds have been the main beneficiaries in 2020 as investors sought sustainable opportunities and safe havens during a tumultuous year. The rollercoaster year saw a record outflow in March of £9.7 billion as savers reacted to the nationwide lockdown and rapid global spread of coronavirus. Yet, the speed of the return to inflows after March has been equally significant. Retail investor confidence returned quickly and was sustained, as savers invested £18.7 billion into funds from April to October.

Here are the key trends in the retail investment market for 2020:

• Responsible investment comes of age in 2020

This year savers have put their money to work to support positive change globally as ESG concerns move up the agenda for those looking to invest. £7.8 billion has been placed into responsible investment funds between January to October this year, accounting for almost half of all net money placed into funds (47.5%). This is four times higher than over the same period in 2019 and demonstrates a real shift in savers’ priorities. In October 2020, over £1 billion was placed into responsible investment funds – the highest monthly total on record.

• The rise and rise of global

In a year marked by uncertainty, savers looked to manage their risk by diversifying their investments with global equity funds being one of the main beneficiaries. Funds in the IA’s Global sector, between January to October this year, saw inflows of £5.3 billion with all months seeing inflows apart from March. By October 2020, funds under management in global equity funds stood at £137.6 billion – taking the top spot as the IA’s largest sector for the first time, a position previously held by ‘UK All Companies’.

• A bumpy ride for UK equities

Funds invested in UK companies faced a tale of two halves in 2020. In the first five months of the year, UK equities achieved a £2.3 billion inflow. Savers took advantage of cheap share prices in March as the value of the UK stock market plummeted. However, the recovery of the FTSE has lagged its global counterparts, including the MSCI World: UK dividend suspensions combined with the deadline for Brexit looming and coronavirus weighing on the economy put the brakes on inflows. June to October saw a reversal of fortunes as savers withdrew £3.8 billion.

• Bonds recover from March outflows

Funds invested in bonds bore the brunt of March’s outflows, with savers pulling out £7.5 billion or three quarters of March’s outflow. As the value of equities plunged, savers did not want to crystallise losses by selling out of equities and chose to take cash from bonds. However, confidence returned quickly and in the following months bonds staged a bounce-back as savers invested £10.2 billion from April to October fully reversing the March outflow. Overall, bonds saw the largest inflows of all asset classes from January to October. In particular, savers’ preference for globally diversified bond funds intensified amidst the uncertain climate.

Miranda Seath, Head of Market Insight at the Investment Association, said:

“Despite a tumultuous year, savers continued to focus on their long-term financial goals by investing £16.4 billion into the fund market between January and October. As we head towards the new year, whether it is helping investors put their money to work to support positive change globally through responsible and sustainable funds, or through delivering solid long-term returns as savers face rock-bottom interest rates, there is a significant role for investment managers to play.”