This year’s Isa season looks to have been one of the worst on record as war in the Middle East led some retail investors to put their investment plans on hold and others to flee the market outright.
The news will compound the problems of the UK fund industry, which was already reeling from a rash of selling last autumn amid speculation that UK chancellor Rachel Reeves might cut the tax-free lump sum available to pension investors.
March is typically one of the biggest months of the year for fund buying in the UK as investors rush to use their £20,000 Isa allowance before the end of the tax year. The stock market turmoil unleashed by the Israel-Iran war could not have happened at a worse time for the industry.
Data from Calastone, which provides back-office technology for fund distribution, shows investors withdrew a net £1.4bn from UK-domiciled equity funds last month, the worst March figure since Calastone’s records began in 2015, the seventh-worst figure for any month in that period, and a record tenth straight month of selling. Bond funds also saw a record £535mn of outflows as rising yields sent prices tumbling.
“Over the last month there has been a tremendous amount of pessimism among investors,” said Edward Glyn, head of global markets at Calastone.
“Investors have been sustaining caution for several months, as the long run of outflows from equity funds shows, but selling accelerated in February and particularly in March, when you might normally expect Isa season to show the opposite.
“This coincides with heightened geopolitical tensions in the Middle East,” Glyn added. “The ceasefire [on April 7] came after the end of the tax year, limiting its potential impact on late Isa contributions.”
However, some believed the Isa season had not been a total washout.
Jason Hollands, managing director of wealth manager Evelyn Partners, said some investors had funded stocks-and-shares Isas with cash initially, utilising their annual allowance but avoiding committing the money to the market until the current volatility dissipates.
“Clients are increasingly mindful of the tough tax environment,” Hollands added, with capital gains generated by investments held outside Isas taxed increasingly harshly.
Charlie Newsome, senior investment director at Rathbones, another wealth manager, said there was “a certain amount of caution” as “the news that keeps coming out is immensely depressing”.
Yet he remained hopeful of a near-term rebound. “People want to stay invested and see through the short-term volatility we are seeing in markets,” he said. “We were in a pretty strong market before all this started and I think people still remain fairly optimistic in the long term about investing.
“We will see some great opportunities in some very good companies that have underperformed. That’s a good opportunity to re-enter.”
Calastone’s data only covers flows to and from mutual funds, so misses the buying of increasingly popular exchange traded funds. However it claims to capture 85 per cent of the UK mutual fund market, which accounts for the overwhelming bulk of assets under management.
Its data shows broad-based selling of every equity sector in March, except for funds invested in North America.
Data from Hargreaves Lansdown, the UK’s largest investment platform, suggests global equity trackers and US equities, alongside gold and silver, were most popular during the final week of the Isa season.
