Investors back bonds over shares

PRIVATE investors' stampede from shares to corporate bonds gathered pace in July, new figures show. It comes despite repeated warnings from market commentators and some financial advisers of a possible investment bubble in the bond market.

Thousands of unit trust holders have shunned funds from their former favourite, the UK all-companies sector, in the past year in favour of the UK corporate bond sector, which is perceived as safer. The sector has returned an average 11% in the past year, beating 5% for the UK all-companies sector, according to financial analyst Standard & Poor‘s.

The UK bond sector attracted 49%, or £422m, of all unit trust money in July, up from 40% in June, according to the Investment Management Association. The figure was 30% a year ago and just 6% two-and-a-half years ago.

UK equity income funds also gained popularity, taking 18% of total investment compared with 13% a month earlier. The Far East (excluding Japan) was another big gainer, taking 11% against 5% a month before.

The figures also suggested small investors remain wary of the recent rally in the FTSE 100. The index rose steadily in July, gaining nearly 4%, but net sales of Isa funds fell from £293.6m in June to £279.1m in July.

Gross sales of retail funds, which fail to take into account money taken out, showed an increase to £2.5bn from £2.3bn a year earlier. 'The past months show indications of an upturn with sales of unit trusts and Oeics up on last year and funds under management at their highest level since June 2002,' said Sheila Nicoll, deputy chief executive of the IMA. 'For the moment, investor confidence appears to be rising as more retail money enters the market.'

Total funds under management, including private investors and institutions, rose from £205bn to £222bn.