FOOL'S EYE VIEW
Foolish Investors Keep Plugging Away

By James Carlisle
July 29, 2002

Judging by today's sales figures from the Investment Management Association (IMA) retail investors have been shying away from the stock market. With the exception of September last year, net retail sales of investment funds last month were lower than they have been in any month since January 1995. The bright spot in the figures is that Foolish investors with regular savings plans appear to be taking a sanguine, long-term, view of the current environment.

Overall, in the second quarter of this year, during which time the FTSE All Share fell by 12%, retail investors put £3.1b more into unit trusts and OEICs (including ISAs and PEPs) than they took out. That's about 7% less than the net £3.4b million they invested in the same period last year and almost a third less than the £4.8b million invested in the second quarter of 2000.

Switching into bonds

The figures also mask a general shift away from equities and into gilts, bonds and cash. Bonds are seen by many as being a safe haven when the market has been falling and fund managers have taken advantage of this to market them heavily in recent months. Investors should take care, however, since the same factors that would do further damage to shares, most importantly rising long-term interest rates, would also hit bonds.

Anyway, funds investing in these areas accounted for about 12% of net retail sales in 2000, while this year their share of the market had grown to 35%. Stripping these out, net retail investment in share-based funds has more than halved since 2000.

Institutional investors

Institutional investors have apparently shown even less of an appetite for shares, taking a net £408m out of investment funds in the second quarter. It seems, however, that they have a some sort of problem with the second quarter of the year, since they took out money in the same period in the last two years. Every other quarter in the last two years has seen a net inflow of institutional funds.

It seems, however, that the institutions trade much more than individuals. On average over the last two years, institutions have bought an average £5.3b worth of unit trusts per quarter while, at the same time cashing in an average £4.7b. The equivalent figures for private investors are £7.6b of purchases and £4.8b of cashing in.

Foolish regular investing

The one area of the retail savings market that has held up well is regular savings plans. At the end of June, there were apparently 2,014,822 of these, just 3% down on this time last year and 8% more than in 2000. The average monthly investment into these plans, running at £85 at the moment compared to about £89 two years ago, has also remained remarkable stable.

So, while it looks as though lump sum investments and institutional investors may have been staying away from the stock market, the steady-as-she-goes Foolish investor has been plugging on regardless. Studies show that this is the best approach to take over the long-term. If the stock market goes down, then it just means that your investment of £85, or whatever, will buy more units than it did last month. If it keeps going down then you'll buy more and more units. In fact, assuming that you're going to be a net investor for many years to come, you should actually hope that the market falls further so that you can add to your investments at lower prices. Get ready to be disappointed, however, because shares will eventually recover.

More: The Fool's ISA Centre