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Personal Finance: Investors are running scared from ISA stock.

Byline: John Cranage

The extent to which the stock market shake-out has scared off smaller investors emerged this week from data collected by the Association of Unit Trusts and Investment Funds.

Net sales of individual savings accounts slumped by two-fifths in the first quarter of this year, the survey revealed.

Investors stashed just pounds 3 billion away in ISAs between January 1 and the end of the 2000-01 tax year on April 5, AUTIF said.

The figure compares with a net inflow of pounds 5 billion in the same period last year.

'Falls in stock market values and an uncertain outlook have deterred many would-be investors in the final quarter of the tax-year,' said Clare Arber, public relations manager at AUTIF.

Hit by a slowdown in the US economy and fears of a global recession, markets have spiralled downward led by technology, media and telecoms (TMT) stocks.

The benchmark FTSE-100 share index has slumped from its December 1999 peak by more than 16 per cent. The index has fallen by more than six per cent so far this year, while the technology-heavy Nasdaq index in the United States is 60 per cent off its high of March 2000.

With investors worried about the direction of stock markets, the traditional end-of-season stampede to buy ISAs was more like a trickle this year.

March's sales figures were up on February by 83 per cent at pounds 1.3 billion and 130 per cent up on January - but were 49 per cent down on the same month in 2000.

The first five days of April saw small investors, anxious to use up their annual allowances, pump a further pounds 633 million pounds into ISAs, bringing the total sales for the 12-month period to pounds 9 billion, a 13.5 per cent reduction on the pounds 10.4 billion net inflow in 1999-2000.

Jason Holland, deputy managing director of financial adviser BestInvest, said of the AUTIF figures: 'It is not surprising that across the industry sales are going to be down quite significantly.

'We talked to various fund groups and brokers and they were estimating sales down between 30 per cent and 80 per cent.'

Growing mistrust of TMT stocks helped to slash net sales of specialist funds by by 425 per cent to pounds 116 million pounds from 609 million pounds last time.

As well as avoiding TMT funds, those savers who did put money into ISAs were generally more cautious than last year, picking less volatile sectors in which to invest.

March saw outflows from Europe-ex UK equity funds into UK corporate and other bond funds, although UK All Companies and North American equity funds saw increased investment, according to AUTIF.

Net sales of ISAs in the specialist sector slumped to around pounds 53 million in March from more than pounds 336 million a year earlier.

Total funds under management in ISAs, unit trusts and PEPs fell by eight per cent to pounds 244 billion in March compared to pounds 266 billion, which was recorded only a year earlier.

Investors looking for security combined with returns are turning to With Profit bonds (WPBs) in big numbers, according to financial adviser Chartwell.

These have had something of a chequered history since 1994, when a fall in bonus rates and poor investment returns resulted in many savers jumping ship.

Since then, however, annual sales have rebounded from pounds 5.4 billion in 1997 to more than pounds 8 billion in 1999.

'We would expect demand to continue rising, as many products have now passed the crucial five-year time period and are producing competitive performance figures,' said Chartwell.

'This has encouraged existing investors to increase their holdings and will entice new investors looking for a combination of security and consistent investment returns.'

Prudential, with a combined yield of 7.25 per cent, heads Chartwell's latest top ten WPB recommendations which is contained in the 12th edition of the firm's guide to the financial product.
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Publication:The Birmingham Post (England)
Date:Apr 28, 2001
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