Small investors shunning funds

INVESTORS continued to shun funds last month thanks to the enduring slump in the UK stock market. New figures show net sales of Isa investment funds were down 45% to £633m in May compared with a year earlier.

Sales were also down 60% on April's figures. A large month-on-month fall had been expected because small investors are awarded a fresh £7,000 tax-free Isa allowance on 6 April which boosts sales. However, the fall was worse than the 54% slide between May and April in 2001.

Net sales take into account new Isas sold together with money flowing out of the tax-free wrappers.

'It's certainly disappointing,' said Clare Arber, head of communications at the Investment Management Association which compiled the figures. 'But I don't think it's surprising given that it's far easier to encourage new investors when the stock market is going up.'

The FTSE 100 index is currently 35% off its January 2000 peak of nearly 7,000 points. IMA admits Isa sales could be even worse for June as the Footsie has taken a further slide from 5,000 points to around 4,600 since the beginning of the month.

Among small investors, low-risk corporate bond funds were most popular followed by equity income funds and UK other bond funds – those that invest in higher risk 'junk' bonds. Growth funds fell out of favour with their home, the UK all companies sector, sliding from first place to sixth.

The figures also revealed a spectacular slump in the amount of institutional money flowing into funds, down 75% from £450m to £102m between April and May. However, the IMA said the numbers are distorted by large trades from the City's biggest financial houses. A total of £239bn was managed in funds last month compared with £259bn a year earlier.