Brexit fund exodus eclipses 2008 crisis

Retail investors withdrew £3.5 billion from UK investment funds in June, according to Investment Association data released today.

By comparison, in the worst month of withdrawals during the financial crisis, January 2008, retail investors withdrew £561 million from UK investment funds. In October 2008, just after the collapse of Lehman Brothers, retail investors withdrew £493 million from UK investment funds. Total assets under management are now around twice as high as they were back then, but June 2016 was still an exceptional month for outflows.

The exodus was led by investors in the property sector, who withdrew £1.4 billion from these funds, leading to some funds suspending trading, and others imposing hefty dilution levies on those who did want to sell.

£2.8 billion was withdrawn from equity funds across the board, with £1 billion of net withdrawals from the UK equity sectors.

£464 million was also withdrawn from ISAs over the course of the month.

Laith Khalaf, Senior Analyst at Hargreaves Lansdown comments:

‘The scale of the exodus from investment funds in June is quite extraordinary, with the Brexit vote eclipsing the financial crisis in terms of putting the frighteners on retail investors in the short term.

The property sector saw the biggest outflows, as investors flocked to the emergency exits, concerned that the economic effects of leaving the EU would damage commercial property prices. Since the vote some property funds have been forced to suspend trading because of the high level of outflows, with others imposing high transactional charges on those wishing to sell. UK and European equity funds also saw heavy outflows over the course of the month, with fixed interest and absolute return funds being the main beneficiaries.

Clearly investors were rattled by the referendum, and switched out of assets they perceived to be at risk from a vote to leave the EU. UK investors who withdrew from equity funds are probably regretting this decision in light of the performance of the stock market since the referendum, and that goes in spades for those who cashed in their ISA allowance, losing that tax shelter forever.

This demonstrates the danger of events-based investing, because even if you do happen to guess the correct outcome, you still might not be able to predict the effect on markets and asset prices.

When it comes to elections and referenda, investors are better off voting with their polling cards rather than their finances. In these situations it pays to keep a cool head, to ignore the inevitable clamour, and to take a long term view on your portfolio.’

(Source: Hargreaves Lansdown)