Fixed-income products are becoming more popular, according to a companyUK retail investors have been piling into gilts and other fixed-income products in search of higher returns and lower risk despite a sharp sell-off, according to investment platform AJ Bell.
Michael Summersgill who became AJ Bell CEO in October last year said that the platform’s customers had increased their investment in UK government bonds “significantly”. He said: “I have been here 16 years and I’ve never seen fixed-income products or gilts being purchased in such a volume.”
AJ Bell said that UK government bonds are among the 10 most popular products, as investors looking for attractive returns buy them at lower prices.
UK gilt rates hit levels not seen since Liz Truss’s “mini” budget last year. This was after the UK reported consumer prices inflation of 8.7% for April, which is higher than the Bank of England forecast.
Gilt, which moves inversely with yields, dropped again on Thursday. The yield on 2-year gilts increased 0.15 percentage points, to over 4.5 percent. Traders bet interest rates will peak at 5.5 percent by the end the year.
Retail investors are following the trend of institutional asset managers who have recently shifted their focus to fixed income products in order to secure higher yields.
Summersgill stated that the most popular investment in the past three months was gilts maturing January 2024.
People in this uncertain climate thought: “I don’t think I want my money sitting here doing nothing. . . “But I’m not sure that this is the right time to make a large equity market bet’.”
Interactive Investor, a rival platform, reported that retail investments in gilts increased 920 percent between April 2022 and March 2023. However it was still a small percentage of the total trading.
Sam Benstead, bond specialist at Interactive Investor, said that yields on two-year gilts had risen above 4.5 percent by the end of September 20, offering an attractive return to those who hold the bonds until maturity.
Investors have also benefited from the tax rules for gilts. There is no need to pay capital gains tax when the principal has been repaid at maturity.
AJ Bell’s pre-tax profits increased by 61 percent to £42mn during the six months ending March 31, on revenues of £104mn. This was a result of new customers and higher returns from cash balances.
Rae Maile at Panmure-Gordon said that AJ Bell’s profit before taxes exceeded their estimates due to AJ Bell’s lower than expected costs, and higher interest on cash balances. He said: “AJ Bell is investing in its business, its brand, and the benefits of this are becoming increasingly apparent.”
More than 450,000 clients have invested £69bn in its platform. This is a £2bn increase year-on-year. The inflows to its own funds rose by £0.9bn and totalled £3.9bn.
Post Disclaimer
The following content has been published by Stockmark.IT. All information utilised in the creation of this communication has been gathered from publicly available sources that we consider reliable. Nevertheless, we cannot guarantee the accuracy or completeness of this communication.
This communication is intended solely for informational purposes and should not be construed as an offer, recommendation, solicitation, inducement, or invitation by or on behalf of the Company or any affiliates to engage in any investment activities. The opinions and views expressed by the authors are their own and do not necessarily reflect those of the Company, its affiliates, or any other third party.
The services and products mentioned in this communication may not be suitable for all recipients, by continuing to read this website and its content you agree to the terms of this disclaimer.