Stock market investors turn positive

Increased optimism is not shared by some of the country's most influential fund managers
Kathryn Cooper

Investors have turned positive on the markets, just as some of the country’s largest fund managers have sounded a note of caution about the recent rally.

The latest Investor Confidence Index from the Investment Management Association (IMA) went above 100 in May for the first time since the trade body started compiling the report a year ago. A reading above 100 indicates investors feel more confident about markets.

More than half of investors think conditions have improved compared with six months ago and a similar proportion think now is a good time to put money into investment products.
Of those who are likely to increase their investments over the next 12 months, equities were the most popular choice.

A separate survey from Fidelity Funds Network, the fund supermarket, found that financial advisers have seen business pick up since December, although it is still below normal levels.
The return of confidence has come as the FTSE all-share index has rallied by about 20 per cent over the past three months and 13 per cent over six months as analysts have become more optimistic about the prospects for the UK economy.

However, Neil Woodford, manager of the two biggest funds in Britain - Invesco Perpetual’s £7.8 billion High Income fund and its £5.6 billion Income fund – said last week he did not believe the economy would stage a sharp recovery and thought there was a risk share prices could fall back.

“The V-shaped recovery is now very much the consensus view but I think it is important to sound a note of caution,” he said. “Earlier in the year, it was hard to argue there were sizeable downsides, but now, with the index 1,000 points higher and with most of the rise concentrated in cyclical areas of the market [sectors that closely follow the business cycle, such as housebuilders], there are still opportunities, but there are a lot of risks, too — especially if you see, as I do, no recovery in the economy, no recovery in earnings and no discernible improvement in profitability.”

Investors put a total of £579m into equity funds in April and £445m in March, having pulled money out of stocks and shares in the previous two months, according to the IMA. However, the inflows into equity funds are still dwarfed by the amount of money pouring into bond funds, which stood at £1.045 billion in April.

Richard Saunders, chief executive of the IMA, said: “These findings suggest that investors are feeling more optimistic about the investment market than they did six months ago although they are still cautious about re-entering it.

This improved mood is consistent with IMA sales statistics which show modest net retail inflows into equity funds over the last two months, but much healthier ones into corporate bond funds over the last six months, with April’s overall retail sales being the highest in three years.”