Analysis by J.P. Morgan Asset Management based on figures from the Investment Management Association going back 11 years show the ‘ISA season' phenomenon.
Whereby Individual Savings Account activity is concentrated in the first few months of the year - is alive and well, but suggest that investors are increasingly investing around the turn of the tax year rather than in the months leading up to the 5 April deadline.
But J.P. Morgan Asset Management believes investors could be missing out on potentially better returns, or leaving themselves exposed to possible market fall by investing to a schedule driven by the expiry of the one year ISA allowance, rather than putting their funds to work regularly throughout the year.
The data, for net sales of open-ended funds within an Individual Savings Account wrapper, shows that in each year since 2002, April has been the best-selling month for unit trust and OEIC ISAs. However, where there used to be a gradual and smooth pick-up in activity from the start of the calendar year to the end of the tax year, the last three years have seen declining net sales in March yet increasing sales in April. (See chart below.)
Figures from Investment Management Association, net ISA sales
In terms of overall ISA season investment over the past decade, net sales of open-ended ISA funds all but halved between the 2002 and 2003 seasons, then bumped along at around the same rate until 2008, when there was actually a net outflow of open-ended funds in ISAs of £1m between January and April. This occurred in spite of net flows having turned positive in March and April. (See chart below.)
Data from Investment Management Association, aggregate net sales of open-ended funds in ISAs, Jan-Apr.
Commenting on the trends, Keith Evins, Head of UK Funds Marketing at J.P. Morgan Asset Management, said: "The sales data for investment ISAs in recent years almost suggests panic-buying - as if people know they need to use their allowance, but don't make their buying decisions until the very last minute. Looking at the figures from 10 or so years ago, there is a much clearer and more gradual step-up in buying activity across the first quarter, although the amount that people were investing in stocks and shares ISAs was evidently hit by the market slumps in 2003 and 2008/9."
Evins added: "The big spike in April sales could reflect ‘early birds' investing their new year's ISA allowance as well as those who have left it to the last minute. Because of the ‘use it or lose it' nature of the ISA allowance, there will always be an element of seasonality in buying behaviour. But with studies consistently showing the value of regular investment, and the impossibility of knowing whether markets will plummet or surge the day after your lump sum goes in, we would argue that even if you have a lump sum you might be better off investing it in stages. For the many people who do not have a lump sum, regular investing - even if it is £50 a month - is an affordable way of building a meaningful savings pot for the future."
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