Author: Mintel Group Ltd.
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Consumers and Investing: Inc Impact of COVID-19 - UK - October 2020
Overview
 
While most investors have remained cautious in the wake of the COVID-19 crisis, Mintel’s research reveals that 9% of those with savings and investments say the crisis has made them more willing to take risks with their money. Of this group, 73% expect to open a new investment product within the next year. 

COVID-19 looks set to increase the sale of retail investments. Although total funds under management increased significantly in the immediate aftermath of the outbreak, net retail sales significantly increased in April and May as investors sought to respond to the rapidly changing conditions and opportunities. As the market has stabilised, monthly sales have returned to more normal levels; however, it is expected that gross retail sales will increase by 15% in 2020.

The economy looks set to return to growth in 2021, although there is much uncertainty about the trajectory and pace of the recovery. An extended recession and subsequent slower recovery will harm the investment market. Even affluent older investors who are less likely to have been directly financially affected by the outbreak will take a more cautious approach if uncertainty persists. 

Savings activity peaked during April and May as the lockdown period limited the opportunities to spend money, while people also took a more cautious approach to their finances. This could open up opportunities to engage with new investors who had previously been tempted but may not previously have had the funds to invest to enter the market. 

Key issues covered in this Report
●	The impact of COVID-19 on the retail investment market and the outlook for the market.
●	Investment products ownership and level of investable assets held. 
●	Attitudes towards taking financial risks, and how this been altered by COVID-19.
●	Important considerations when opening an investment product or choosing an investment provider.

COVID-19: market context
The first COVID-19 cases were confirmed in the UK at the end of January, with a small number of cases in February. The government focused on the ‘contain’ stage of its strategy, with the country continuing to operate much as normal. As the case level rose, the government ordered the closure of non-essential stores on 20 March. 

A wider lockdown requiring people to stay at home except for essential shopping, exercise and work ‘if absolutely necessary’ followed on 23 March. Initially, a three-week timeframe was put on the measures, which was extended in mid-April for another three weeks. 

The Health Protections Regulations 2020 came into effect on 15 June allowing the reopening of all non-essential stores in England as well as the mandatory use of face coverings on public transport. Pubs, restaurants, hotels and hairdressers were able to reopen on 4 July, with many beauty businesses following on 13 July.

From 24 July, it became mandatory to wear face coverings in shops and supermarkets. Rules on travel remain fluid: from 10 July, travellers from more than 50 “low-risk” countries no longer had to self-isolate for 14 days, but on 28 July the removal of Spain from this list of low-risk countries dominated headlines in the UK.

From the 14 September, more stringent limits on mixing between households were imposed across the UK, although the rules vary between the home nations. It is hoped this will help to limit the rising level of infections seen at the end of August and start of September. Local lockdown measures have been implemented in areas with high infection rates, and this is likely to be extended to more areas over the autumn and winter months in order to protect NHS services.

On the 13 October, the new three-tiered system of COVID-19 restrictions began in England. Medium-tier restrictions include the rule of six both indoors and outdoors, with pubs and restaurants shutting at 10pm. High-restriction areas ban household mixing indoors, while the rule of six applies outdoors. Very high restrictions ban household mixing indoors or outdoors in hospitality venues or private gardens, while the rule of six will apply in outdoor public spaces. Pubs and bars not serving meals will also be closed. 

Economic and other assumptions
Mintel’s economic assumptions are based on the Office for Budget Responsibility’s central scenario included in its July 2020 Fiscal Sustainability Report. The scenario suggests that UK GDP could fall by 12.4% in 2020, recovering by 8.7% in 2021 and that unemployment will reach 11.9% by the end of 2020, falling to 8.8% by the end of 2021. 

The current uncertainty means that there is wide variation on the range of forecasts, however, and this is reflected in the OBR’s own scenarios. In its upside scenario, economic activity returns to pre-COVID-19 levels by Q1 2021. Its more negative scenario, by contrast, would mean that GDP does not recover until Q3 2024.

Products covered in this Report
For the purposes of this Report, Mintel has used the following definitions: 

Exchange-traded Funds are investment products that track an index (eg FTSE 100) by investing in the same stocks and shares that make up that index. ETFs are passively managed, meaning that the fees for these types of investment are typically lower than other actively managed investments. Exchange-traded funds are listed on stock exchanges and can be bought in the same way as individual shares or an investment trust fund.

Individual company shares are issued by businesses to raise equity or capital; these shares are offered to investors to purchase. Once an investor purchases shares, they become a part-owner of that business. The price of shares can go up and down, meaning that the value of an investment may go up or down depending on how well the business is performing or other market conditions. When a consumer wishes to sell their stake in a business, this activity is referred to as share dealing.

Investment bonds are life insurance policies where a lump sum is invested in an investment fund selected by a consumer or an adviser. These policies are typically whole-of-life policies, and the returns a consumer receives when these policies are cashed-in will depend on the performance of the fund, much like other investment products.

Stocks and Shares ISAs are a tax-efficient method of investing in a variety of different investments. It is possible to invest in different products through an ISA including individual stocks and shares, unit trusts, open-ended investment companies, investment trusts and government and corporate bonds. Unlike a cash ISA, there is risk carried with a stocks and shares ISA as the money is invested and therefore is subject to market fluctuations.

A Real Estate Investment Trust is a company or a group that owns and manages property on behalf of shareholders. This type of investment allows consumers to invest in property without having to purchase a property themselves. These types of investments do not purchase or hold equities, so will not be discussed in this Report, but they are referenced in the Consumer sections of the Report.

An Investment Trust Fund is a form of collective investment that allows investors to pool their money to purchase a variety of assets. Investment trusts are set up as companies and are listed on the London Stock Exchange, which means that an investment trust has to publish an annual report and audited statements. They also have a board of directors who are responsible for safeguarding an investor’s interest.

Investment trust funds are closed-ended investments, meaning that there are a limited number of shares that can be issued by the company; when an investor invests in this type of fund, they become a shareholder of this company.

Unit Trust Funds and Open-ended Investment Companies are collective investment products that allow multiple investors to pool their money to purchase a variety of different assets. Fund managers purchase a variety of shares, bonds, property and cash assets, and other investments to create a diverse portfolio for investors.

There is a slight difference between unit trust funds and OEICs. Unit trust funds offer investors units, which are created when buying in, and cancelled when an investor wishes to leave the fund, whereas an OEIC is run as a company so instead of issuing units it issues and cancels shares when consumers enter or leave the company. Both products are open-ended, which means that the creation of units or issuing of shares is unlimited.

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