After a tough 2008, gross and net new sales of collective investment funds have experienced a recovery in 2009, with the second quarter net retail sales figure the highest on record at £7.4 billion. A major contributor to this growth has been the improvement in investor confidence which has resulted in the recent rebound in stock market performance early in the year. Low inflation and interest rates have also played their part, with the former helping to ease pressure on personal budgets and the latter causing investors to seek out higher returns.

While conditions have certainly improved in recent months it is important to keep things in perspective. The investment climate is still very fragile with investor sentiment still considerably below pre crisis levels. At the time of writing, the UK economy is still in recession, unemployment is still on the rise and prospects for recovery remain hazy. Additionally, with the government borrowing heavily to provide stimulus for the economy during the crisis, both tax and interest rates will eventually have to rise. Even if the UK emerges from recession by the third quarter all this is likely to hinder the pace of economic recovery, and possibly result in disappointing investment returns.

This report explores the key developments taking place in the collective investment market, ranging from wider demographic and economic trends to industry-related regulatory developments such as the RDR and EU UCITS directives. The Market Size section highlights changes and potential for growth in the market, while the Market Share section shows how the financial crisis has affected the key players in the market. The final sections of the report present the findings of Mintel’s exclusive consumer research. Here the reader is provided with valuable insight into the attitudes and behaviours of UK consumers towards long-term investment products such as collectives.

Key issues

The recession and uncertainty about the pace of economic recovery make for a very fragile investment environment.

In general consumers show a high preference for low risk, secure cash based savings and investment products such as Cash ISAs and NS&I products.

In addition to risk aversion the lack of available funds and insufficient knowledge are other major obstacles preventing many from investing in products like collectives.

The RDR continues to advance but some aspects of its future development are being clouded by the general election in 2010 which is likely to see a new party come to power.

The tax efficiency of Stocks and Shares ISA is overstated as investors are unable to reclaim the 10% tax on dividends, while the CGT threshold is so high that many are unlikely to be hit by the tax.

The credit crunch has resulted in certain providers losing a large amount of market share although the ISA segment market has been less affected.