Late surge fails to prevent 40% drop in ISA sales

After months of gloom and doom, fund managers were yesterday reporting a respectable turn out among private investors keen to buy individual savings accounts (ISAs) before the end of the tax year last Friday.

But fund companies and brokers said the picture was mixed and that the surge would not make up for the 11 months of poor ISA sales this year.

ISA sales are currently 40 per cent down on 2001, reflecting private investors' fears about putting their money into markets which have fallen 24 per cent in the past two years.

Steve Glynn, a managing director at Jupiter, said there had been a "little bit of an increase in the last few weeks, but it is certainly not going to make up for the shortfall this year." Overall, Jupiter expects sales for the 2001 tax year to be 16 per cent down on 2000.

Hargreaves Lansdown, one of the biggest brokers in the UK, estimates that its sales will be down by about the same amount, but said business had been much brisker in the past few weeks.

Mark Dampier, the head of research at Hargreaves Lansdown, said: "After 11 September, I thought it was going to be far tougher. I was around during the 1987 crash and in 1988 business just fell off a cliff. This time investors have been more resolute."

Ann Davis, the executive director at the fund manager Fidelity, said that the usual increase in business in March, as investors rush to invest before the deadline of 5 April, was higher this year, helped by a much heavier use of the internet to make last-minute purchases. "ISA sales in March were 115 per cent up on February, when normally we would see a doubling of business," Ms Davis said.

Investors are still being cautious about where they are placing their money. "Equity income and corporate bonds have been popular, due to investors' psychology that the stock market has had two very poor years and bonds have outperformed equities," Mr Glynn said.

But signs of optimism about a recovery in share prices are creeping in. John Perceval, the head of the online financial website find.co.uk, said: "Equity ISAs were ahead of cash ISAs in March and February and internet traffic and fund supermarkets grew strongly in March, back to the levels of a year ago."

While some fund companies have weathered the downturn in ISA sales this year, others are expected to report very significant falls in business. The spotlight is on Aberdeen Asset Management, Invesco Perpetual and Gartmore, where analysts expect disappointing figures.

Aberdeen said last week that unit trust sales are down 45 per cent compared to last year. Its sales have been hit particularly badly as its expertise centred on its technology funds, which are now being shunned. It is also exposed to the troubled split capital unit trust sector.