Property was the hot seller of 2006

Specialist funds were the most popular form of retail investment in 2006, as the dominance of property funds accounted for almost a quarter of the Oeic market.

According to 2006 year-end statistics by the Investment Management Association, the total of net retail sales grew to £15bn by the end of the year, and demand for investment in property funds amounted to £3.6bn – 24% of net retail sales.

Interest in the type of funds consumers buy is at the same time now tracking what happens in the stockmarkets, according to the IMA, as the quarterly net retail sales and Isa/Pep sales broadly tracked the performance of the FTSE 100.

But while net Isa sales grew to £2.3bn, from £1.9bn the previous year, the IMA recognises Isa sales are not recovering as strongly as might be expected, despite the tax advantages to Isas, as the market is finding other drivers for growth within the Oeic and unit trust sector.

Commenting on the still slow sale of Isas since 2000, Richard Saunders, chief executive of the IMA, says changes to the regime should hopefully improve demand for Isa savings once the regime is simplified to remove mini and maxi Isa distinctions and make it possible to move cash into retail investment funds.

“It is likely the abolition of the mini/maxi Isa will not be until 2008, there is not enough time within the 2007 Isa season. But it is something of a mystery because of all the products out there [Isas] are unequivocally the product for tax breaks, other than a pension,” says Saunders.

The IMA says outflows from Peps and Isas are still at a worrying level and growing at a slower rate than the rest of the retail market and will become more apparent once the Pep and Isa regimes are merged as one, as the two regimes are currently worth £410bn in assets under management and account for 22% of all retail funds under management.

At the same time, demand for fund of funds investments is growing and the sector doubled in size over two years, as net retail sales of FoFs reached almost £3bn in 2006 and now accounts for around 20% of net retail sales.

IMA officials say its member firms report FoFs and fund supermarket and platform sales are where they are now seeing most growth, and this is reflected in the changing pattern of Isa sales.

Analysis of gross Isa sales distribution reveals 38% of all Isa distribution – amounting to over £3bn – was through fund supermarkets in 2006 while tied agent sales forces sold £2.5bn worth of business and intermediaries did just £1.2bn worth of Isa businesses.

It is partly for this reason the IMA is now looking to expand its analysis of fund supermarket sales over the coming year by working with the UK Platform Group to look closer at the assets flowing into fund supermarkets, which product wrappers they move into – including sipps – as well as stripping out how much of that money originates from IFAs and from advised and non-advised sales.

“We hope to segregate and upgrade the statistics of all fund supermarkets to be able to give more details about the funds and sales going through supermarkets, so it looks not just at Isa sales but all sales, particularly sipps where there will be growing interest in seeing how big that market will be for funds,” continues Saunders.

We will be able to make a distinction between intermediaries sales and intermediaries sales through platforms, as well as between advised and non-advised sales,” he adds.