UK retail investors are piling on gilts, says AJ Bell

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UK retail investors are 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 assumed the role of AJ BellLast October, the chief executive of , said clients on the platform had increased their investments in UK gilts by a “significant” amount. He added, “I’ve been here 16 years, I haven’t seen gilt and fixed income products bought in volume like what we’ve seen.”

AJ Bell added that UK government bonds are currently among their top ten most popular products as investors looking for an attractive income look to buy them cheaper.

UK gilt yields have reached levels Wednesday had not been seen since Liz Truss’ ‘mini’ budget last year, after the UK reported 8.7% consumer price inflation 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 jumped 0.15 percentage point to surpass 4.5%, as traders bet that interest rates would peak at 5.5% by the end of the year.

The trend among retail investors mirrors the recent move by institutional asset managers into fixed income products to secure higher returns offered amid rising interest rates and stubbornly high inflation.

Summersgill said 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 like, ‘I don’t want this money sitting around doing nothing. . . but I’m not sure now is the time for a big stock market play,” he said.

Data from rival platform Interactive Investor showed retail gilt investments rose 920% from April 2022 to March 2023, although they remained a small percentage of total trading.

“Yields increased more than 4.5% on two-year gilts at the end of September 2022, offering a very attractive yield for those who hold the bonds to maturity,” said Interactive Investor bond specialist Sam Benstead .

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

AJ Bell’s pre-tax profit rose 61% to £42m in the six months to 31 March on revenues of £104m, supported by new customers and higher interest yields from cash balances.

Rae Maile, analyst at Panmure Gordon, said pre-tax profit beat their estimates due to slightly lower-than-expected costs at AJ Bell and higher interest income on cash balances. She added, “AJ Bell has invested in his business and his brand and the benefits are increasingly visible.”

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