Investors cash in their chips as shares rally

UK private investors sold out of equity funds in their droves at the start of this year, cashing in their investments after a bounce in the UK stock market during the fourth quarter of 2004.

UK private investors sold out of equity funds in their droves at the start of this year, cashing in their investments after a bounce in the UK stock market during the fourth quarter of 2004.

According to figures from the Investment Management Association (IMA), the fund management industry's trade body, private investors sold almost £2.4bn of investment funds in January, an increase of 36 per cent on the same month last year.

The amount of new money invested by private investors came in at just under £2.6bn for the month, meaning net sales were just £170m - a drop of almost 70 per cent compared with the first month of 2004.

Sales of Individual Savings Accounts (Isas) were also down almost 14 per cent year on year in January - a month which usually marks the start of a rush in Isa sales. The Treasury's removal of the dividend tax credit last year is widely blamed for the ongoing decline in demand for equity Isas.

Richard Saunders, the chief executive of the IMA, said: "2005 has started slowly with little new money flowing into investment funds and investment fund Isas. This is in spite of continuing stock market improvement, which has seen the FTSE 100 index increase by some 50 per cent in the last two years."

Mark Dampier, the head of research for the Bristol-based financial advisers Hargreaves Lansdown, said: "It just shows that most investors don't really see what's going on. They've missed out on a fantastic market over the past 18 months or so - and some funds are even up 10 per cent over the year to date.

"I think that after a three-year bear market and a string of financial scandals, a lot of people just don't trust the financial services industry anymore. Personally, I think it will be two or three more years before we see investors really starting to regain their confidence."

Mr Dampier added that many investors have chosen to cash in their investments after seeing them recover to the levels at which they bought them several years ago. "I think some people are now thinking 'Thank God, I'm getting out before I lose it again'. There's a lot of emotion driving investors' decisions at the moment," he said.

For those who were investing in January, UK equity income funds were the most popular - for the eighth month running.

Sales of investment funds to institutions also fell sharply in January, to £1.8bn from £2.1bn in the same month last year. Total institutional repurchases remained level at about £2.1bn.

The rise in equity markets over the past year sent total industry funds under management up 14 per cent to £278bn.