UK retail investors piling into gilts, says AJ Bell

UK 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 in gilts, according to investment platform AJ Bell.

Michael Summersgill, who took over as AJ Bell’s chief executive last October, said that customers on the platform had increased their investments in UK gilts by a “meaningful” amount. He added: “I’ve been here for 16 years, I have not seen gilts and fixed-income products being bought with anything like the volume that we’ve seen.”

AJ Bell added that UK government bonds were currently among their ten most popular products as investors in search of an attractive income seek to buy them at cheaper prices.

UK gilt yields hit levels on Wednesday not seen since Liz Truss’s “mini” budget last year, after the UK reported consumer price inflation of 8.7 per cent for April, higher than the Bank of England’s forecast.

Gilt prices, which move inversely to yields, fell again on Thursday. The yield on two-year gilts rose 0.15 percentage points to above 4.5 per cent, as traders bet that interest rates would peak at 5.5 per cent by the end of the year.

The trend among retail investors mirrors the recent shift by institutional asset managers into fixed-income products to lock in higher yields on offer amid rising interest rates and stubbornly high inflation.

Summersgill said that gilts maturing in January 2024 were the single most popular investment product in the three months to March 31.

“People in that uncertain environment were thinking: ‘I don’t want this money sat here doing nothing . . . but I’m not confident that now is the time for a big equity market play’,” he said.

Data from rival platform Interactive Investor showed that retail investment in gilts increased by 920 per cent from April 2022 to March 2023, although it remained a small proportion of total trades.

“Yields rose above 4.5 per cent on two-year gilts at the end of September 2022, offering a very attractive return for those holding the bonds to maturity,” said Interactive Investor bond specialist Sam Benstead.

“Investors also gained from tax rules on gilts, where there is no capital gains tax to pay when the principal is repaid on maturity.”

AJ Bell’s pre-tax profit increased by 61 per cent to £42mn in the six months to March 31 on revenues of £104mn, boosted by new customers and higher interest returns from cash balances.

Rae Maile, analyst at Panmure Gordon, said profit before tax beat their estimates because of AJ Bell’s slightly lower than expected costs and higher interest income on cash balances. He added: “AJ Bell has invested in its business and its brand and the benefits are increasingly being seen.”

It now has more than 450,000 customers investing £69bn on its platform, a £2bn year-on-year increase. Inflows into its own range of funds increased by £0.9bn, to £3.9bn overall.

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