For the ninth month in a row, the Investment Association has revealed net outflows from funds held within ISAs, with £506m of fund redemptions recorded in January.
In total in the 2018/19 tax year, £1.9bn has been withdrawn from funds held in ISAs, though the proceeds may not have been taken out of the “ISA wrapper” altogether, Hargreaves Lansdown said.
Overall net retail sales across funds generally displayed negative trends across January, with redemptions of £859m in the month and, although this is a moderation of the outflows we saw towards the end of last year, it still reflects poor appetite for investment.
Furthermore, UK equity funds saw net retail outflows of £135m in the month. But, the big redemptions came from European equity funds, which saw £450m of net retail outflows.
Commenting, Hargreaves Lansdown senior analyst Laith Khalaf: “Across the industry fund sales within ISAs have been decidedly negative this tax year. This is probably a combination of some ISA investors selling up, and some choosing not to commit new money to stocks and shares.
“While sitting out of the market is understandable given the current political and economic uncertainty, investing is a long term game, and those who watch from the sidelines could miss out on valuable gains if things turn out better than expected. Regularly drip feeding money into the market is a good way to gain some exposure to the upside, while keeping some powder dry in case share prices should fall.”
However, Khalaf noted that what might be “more concerning” in the latest figures is the possibility that Brexit is discouraging some investors from using their ISA allowance at all, which could result in investors missing out on “valuable” tax breaks. The senior analyst has urged investors not to take the “generous” ISA allowance for granted.
“Indeed the current political uncertainty is one good reason not to do so. If governments need money for today, they tend to take it from tomorrow, and that makes tax breaks on long term savings like ISAs and pensions a tempting target for politicians looking for cash if push comes to shove.
“For investors who are wary of putting money in shares at the moment, there are still two ways they can secure their ISA allowance for this year without committing fresh funds to the market. One is to simply put cash into your stocks and shares ISA without investing in yet, and the rules allow you to take your time about making an investment decision, even if that’s after the 5th April tax year deadline. The other method is to do a ‘Bed and ISA’, whereby you use existing unwrapped investments to fund your ISA allowance, selling and then buying them back within the tax shelter,” Khalaf concluded.
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