Volatility ‘has changed attitudes to risk'

Stock market volatility has prompted a dramatic switch among investors in their attitude to risk, new research among IFAs by Prudential shows. More than 75 per cent of advisers say clients' attitude to risk has changed in the past year due to volatility.

And analysis of industry data by Prudential shows the change in attitude has been reflected in net retail sales of ISAs - the Cautious Managed Sector is by far the best-selling among the 30 classified by the Investment Management Association for November and December.

Prudential believes the new rules on ISAs that have come into effect in the 08/09 tax year which allow savers in cash ISAs to transfer money into equity accounts will provide a further boost to the sector. Around £22.6 billion was invested in cash ISAs during the 2006/07 tax year.

Research among IFAs shows six out of 10 advisers say more than half of their clients are now looking to a more cautious investment strategy in response to current stock market conditions.

Gary Shaughnessy, Managing Director of Prudential Retail Life & Pensions said: "Stock market volatility is changing attitudes to risk among investors but the change in attitude should not necessarily mean a switch away from equity investing.

"All the evidence shows that in the long-run equities outperform cash and that investors who stay out of the stock market are not necessarily maximising their potential returns. The new ISA rules which came into effect this tax year are an opportunity for advisers and their clients to reassess their investment strategy and to shift some cash savings into funds investing in shares."

Research from Prudential reveals that between January 2008 and 5 April 2008, 10.37 million people were considering investing in a stocks and shares ISA. However, two thirds of them intended to invest less when compared with the last tax year, and only 3 per cent intended to invest more. Around one in five were going to invest about the same amount and 9 per cent were unsure.

From April 6th 2008 ISA rules have changed to allow maximum investments of up to £7,200 in a tax year compared with £7,000 previously. The cash ISA limit has risen to £3,600 from £3,000. However savers with money in cash ISAs will be allowed to convert them into shares ISAs without affecting their annual limit.

The Prudential Cautious Managed Growth ISA enables you to spread your money over a wide range of different assets including stocks and shares, property, and government bonds - and around the world. This helps to reduce the risk, because if one type of investment isn't performing well, the spread of risk can potentially help to balance any losses. The fund's objective is to deliver long-term total return - a combination of growth and capital. Clients can invest as little as £500 as a lump sum or set up a monthly direct debit for as little as £50 (or do both). Investors can also make free withdrawals at any time (please note there's a minimum of £250 each time).

For further information on the Prudential Cautious Managed Growth ISA, visit pru.co.uk.