Investors remain cautiously optimistic as August saw the third consecutive month of positive net retail sales of investment funds, totalling £804m during the month, according to data from the Investment Association (IA).

The association noted that while net retail sales stayed in the green, overall sales were down slightly compared to July, which it attributed to the quieter summer period as it was in line with the expected seasonal trend.

Investors’ caution was emphasised by bond funds dominating inflows in August, with net retail sales of £1.8bn.

Meanwhile, North American equity funds saw the highest equity net retail inflows with £527m, which were made ahead of the Federal Reserve’s interest rate cut in September.

The IA revealed that inflows to index tracker funds were “consistently high” in August at £2.5bn, with net retail sales totalling £804m, down from £3.4bn in July.

Tracker funds under management stood at £364.1bn at the end of August, equating to an overall share of industry funds under management of 24.1 per cent.

Equity fund outflows accelerated during the month, rising from £50m in July to £408m in August.

UK equities saw outflows fall to the lowest level in 2024 so far, dropping to £829m.

The data showed that UK smaller companies outflows saw a slight decline to £11m, with the IA stating: “Small cap stocks tend to draw a higher proportion of revenues from the domestic economy, so easing UK smaller company outflows signal a potential improvement in investor confidence following positive GDP growth of 0.5 per cent in Q2 2024, and the certainty offered by the UK general election result.”

Money market funds saw their first outflows since March, the IA revealed, with net withdrawals of £316m in August, while responsible investment funds showed signs of improvement with net outflows falling from £390m in July to £343m.

“Our monthly retail sales figures reveal three consecutive months of net inflows, pointing to a continuing trend of cautious optimism among investors,” said IA director, market insight, Miranda Seath.

“The Fed’s more aggressive interest rate cut of 50 basis points in September represents a significant milestone, as the Fed seeks to steer the US economy to a soft economic landing and markets responded positively.

“We have moved past the peak of the rate cycle in the UK and the US and the outlook for equity markets is improving but investors remain cautious, continuing to opt for bonds over equities.

“Recent short-lived market volatility in the US at the end of July was partly fuelled by poorer than expected jobs growth. The path to a soft landing could be bumpy and this could bring new pockets of market volatility.

“And whilst UK investor confidence is improving investors are also waiting to see what the Autumn Budget holds. Post Budget we may see further adjustment to asset allocation.”

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