Unit trusts and Isas hit new highs

PRIVATE investors ploughed record levels of money into unit trusts last year as low cash returns forced savers into the markets.

Individuals invested 25.8 billion in unit trusts and open-ended investment companies during 2009, a six-fold increase on 2008, the Investment Management Association (IMA) revealed yesterday.

It was the highest figure since records began 18 years ago and 45 per cent above the previous peak in 2000 as rock-bottom returns on cash raised the appeal of corporate bond and equity funds.

Almost 10bn was invested in corporate bond funds during 2009, 36 per cent more than in equities, with savers seeking to replace income lost after the returns paid by savings accounts plummeted. But equity funds were more popular in the second half of the year as the market rebound boosted investor confidence.

Individual savings account (Isa) inflows – the total invested after withdrawals and transfers – reached 2.8bn, the highest since 2001. It marked the end of five successive years in which more money was taken out of Isas than invested.

The value of investment funds under management reached its highest level to date at the end of 2009. The 480.8bn of funds under management was up a third from the end of 2008 and over 13bn up on the previous highest year-end, in 2007.

Richard Saunders, chief executive of the IMA, said investors added to their savings at record levels last year.

"This trend can be traced back to the autumn of 2008 in the immediate aftermath of the Lehman crash and the ensuing market falls. Investors have prudently chosen wide diversification both across asset classes and geographically – in marked contrast to the previous record year of 2000," said Saunders.

However, Patrick Connolly, head of communications at AWD Chase de Vere, expressed concern at the shift from bonds to equities and then property during 2009. "In the past, high levels of sales have often meant that too many people have invested too much money in the wrong areas," said Connolly. "This has been repeated with other asset classes including commercial property and fixed interest."

Demand for equity Isas has strengthened further in recent weeks, according to Skandia, which said the 2010 Isa season had kicked off with strong inflows into both UK and global equity funds.

Michelle Cracknell, strategy director at Skandia, said: "Investor confidence in stock market investing seems to be returning and we're anticipating that the annual run up to tax year end will see a much more diverse range of investments than last year."