Year of High Investment Recorded for Retail Investors

Approximately £43.4 billion was invested in retail funds for 2021, £5.2 billion shy of the record £48.6 billion invested in 2017.

In theory, much of this upsurge can be attributed to an increase in disposable income, according to Laith Khalaf, head of investment analysis at AJ Bell.

“In the depths of the pandemic, people built up stacks of cash from not going out, and with interest rates on the floor, it’s little wonder that a lot of that money found its way into the stock market,” he said.

Much of these record inflows to retail funds were recorded in the first half of the year. This was when monthly inflows into funds peaked at £6.2 billion at the end of the 2021 ISA season in April, according to Chris Cummings, Chief Executive of the Investment Association.

“Investors put their lockdown savings to work in 2021, with near record inflows to retail funds in 2021 helping investors take part in the global COVID-19 market bounce-back,” said Cummings.

Inflows to responsible investment funds totalled a record £16 billion, £4.3 billion more than the figure recorded in 2020.

In addition, retail investors put £14.8 billion into equity funds during 2021. This surpassed the previous record of £12.8 billion, which was set in 2013.

Most of the flows going into global equity funds carry a high weighting on the US stock market.

“The average global fund returned 18% in 2021, so many retail investors are quids in on their decision to back this sector. But the new year has brought with it traces of blood in the mighty US stock market,” said Khalaf.  

However, he noted that such investors need to be aware the US market’s high volatility. Since the average investor in global funds has half their assets invested in the United States, there remains little room for error.

“The S&P 500 fell by 5% in the first month of 2022. And based on afterhours trading, the Facebook owner Meta Platforms, a company worth almost a trillion dollars, lost 20% of its value overnight,” he explained.

“That’s roughly equivalent to a company the size of AstraZeneca, one of the biggest in the UK stock market, disappearing in the blink of an eye.”

The five best-selling Investment Association sectors for December 2021 were: 

1. Global with net retail sales of £834 million.
2. Short Term Money Market with net retail sales of £557 million.
3. Mixed Investment 40-85% Shares with net retail sales of £366 million.
4. Volatility Managed with net retail sales of £354 million.
5. North America with net retail sales of £291 million.
    

The worst-selling Investment Association sector in December 2021 was UK All Companies, which experienced outflows of £781 million.