March saw cash funds receive the largest inflows of all fund types in Europe, but financial advisers in the UK suggest this could end as clients seek higher risk to cope with inflation.
Money market products were the best selling asset type overall for March with €27.5 billion of net inflows, followed by bonds with €21.5 billion, according to Thomson Reuters Lipper figures.
Yet in the UK, 70% of financial advisers surveyed predicted an increasing number of clients would consider switching some of their capital out of cash and into other asset classes in response to rising inflation, which is eroding the value of their cash savings.
A study, commissioned by Investec Wealth & Investment, found that nearly 65% of the 108 financial advisers surveyed believed that the continuation of low rates on cash deposits during a time of rising inflation would alter perceptions of cash as a safe haven.
Investec, quoting Office of National Statistics data, said that CPI inflation rose sharply over the last year from 0.3% to 2.3% between February 2016 and February 2017. Over the same period, the FTSE 100 grew by about 22%.
Further, since June 2016 and the Brexit vote, average rates paid by cash ISA funds that invest in cash have halved from 0.87% to 0.43%.
Mark Stevens, head of intermediary services at Investec Wealth & Investment, said: “Whilst interest rates had remained at historic lows for eight consecutive years alongside negligible rates of inflation, cash has retained its reputation as a safe if rather unexciting asset class. However, with inflation rising significantly in recent months, many advisers believe their clients’ patience with cash will start to wear thin as they see their deposits shrinking in real terms.”
The most popular benchmark supported by 43% of advisers was ‘RPI plus’, Investec found.
Stevens said this was not surprising as it was a “familiar and simple measure”.
But he added that advisers needed to work closely with their discretionary investment manager partners to deliver inflation-adjusted returns for those investors with large a portion of their assets held in cash.
Despite the strong flows into money market products across Europe in March, the flow figures over recent months have been more volatile. Though January also saw strong net inflows of €26.9 billion, February saw a strong decline, with net flows negative at –€6.6 billion.
Flows into equity and bond funds this year have generally been strong.
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