Isa sales take a new slide

SMALL investors put less money into unit trusts and Open Ended Investment Companies (Oeics) last month despite a strong rally in the UK stock market.

Net sales of Isas fell 15% from £259.5m in September to £220.3m in October, according to figures from the Investment Management Association (IMA). The total was also down 8% on the same month last year.

A 5% surge in the FTSE 100 from around 4100 points to more than 4300 during October failed to drum up investor interest. 'October is normally a very good sales month,' said Sue Whitbread of independent financial adviser Chartwell. 'I can't understand this dip when the stock market has been rising.'

The IMA preferred to focus on a 17% year-on-year rise in total fund sales to private investors, up to £591m. 'These figures continue the encouraging trend of recent months, and we have now had five successive months in which net retail sales are up on a year ago,' said Richard Saunders, chief executive. But he admitted: 'We have some way to go, however, until we can say that investors are confident about returning to the equity market.'

The figures also revealed UK corporate bond funds remained favourite, attracting £63m or 41% of all Isa money. In comparison, the UK all companies sector, home to most British growth funds and traditionally the most popular fund-type, pulled in just £43m.

Several high profile experts have warned of a possible bubble in the bond market as income-hungry investors chase the sector's strong performance of 2001 and 2002. 'If inflation bubbles back up, it could really hurt bond investors,' said Chartwell's Whitbread. Bonds tend to suffer when interest rates rise to control inflation.

The figures revealed it was fund companies rather than independent advisers selling the vast majority of bond funds.

Should I invest in bonds?

Most advisers recommend a portfolio's bond exposure should match an investor's age. So a 35-year-old should have 35% of their money in bonds with most of the rest in share-based funds. But Whitbread added: 'It's a useful guide but there's lots of other individual circumstances that should be taken into account.'