Investors turn to bonds as confidence nosedives

Confidence in nine out of ten major investment sectors including UK equities, Emerging Markets, Cash and Commodities has plummeted dramatically, according to the latest Virgin Money Investor Intentions Index. The only sector to beat the gloom was Bonds which has seen a 15% rise in confidence to a healthy 83% since the launch of the Index.

The Virgin Money Investor Intentions Index tracks both short-term and long-term trends and crucially it also measures IFAs' long-term confidence in various sectors.

And the latest figures show that the past three months has seen the lowest quarterly interest in investments since the index began in June last year, with the number of IFAs recommending specific sectors dropping in all but one of the ten sectors being tracked.

According to Virgin Money the only sector to emerge positively from this quarter's Investor Intentions Index was Bonds. Compared to when the Index began, more IFAs recommended investing in Bonds in the past three months, and more will recommend investing in Bonds in the coming three months.

The greatest drop in interest was seen in Emerging Markets, with the proportion of IFAs advising their clients to invest in developing regions dropping by half from 67 per cent to just 33 per cent of IFAs.

Commodities, the Far East and Green Investments have also seen a huge slump in popularity, with each of the sectors experiencing a drop of more than 25 percentage points in the number of IFAs willing to recommend them as sound investment opportunities.

Even UK Shares have suffered from the massive fall in the FTSE 100 Share Index. In June last year 76 per cent of IFAs said they were planning to recommend UK equities to their clients but now that figure has dropped to just 57 per cent.

The Company's authoritative Investor Intentions Index tracks the confidence of independent financial advisers across the country in 10 different investment sectors, as well as where they advised their clients to invest their money over the preceding quarter.

The past three months has been riddled with yet more financial disasters and gloomy predictions. Unemployment levels in the UK reached a 10-year peak with almost two million now without work and interest rates hit their lowest levels in history at just 1 per cent. The FTSE 100 also ended 2008 down by 31.3% since the beginning of the year - the biggest annual fall in the 24 years since the Index was started, while the IMF predicted that world economic growth would fall to just 0.5% in 2009, its lowest rate since World War II.

Grant Bather, spokesman at Virgin Money, said: "Confidence has been hit hard and advisers are focusing on protecting clients' cash and battening down the hatches. The only sector where there is sign of growth is in Bonds where advisers are finding opportunities to give clients a degree of protection from stock market volatility as well as the possibility of growth and the chance to enhance income. Bonds are the only beacon in the gloom."

"Even in the current climate there are opportunities for investors. The fact that markets are low means investors may find bargains and if they are willing to look to the long-term, could reap the benefits of buying low and selling high. With the end of the tax year fast approaching, many investors may be tempted to invest in ISAs or stocks and shares in the hope that over the next few years, the markets recover to the highs experienced in the previous 3 years. With a host of world leaders, including Barack Obama and Gordon Brown also pledging to support green initiatives, IFAs could soon be tempted to recommend Green investments in an effort to maximise growth potential in the sector.

"Given the extent of the current economic downturn it is somewhat surprising that it took so long to affect recommendations to investors. But the steady trickle of decreasing interest in where to invest clients' cash has turned into a dramatic slide as IFAs turn their backs on almost every kind of investment."

Looking to the next three months, Bonds also top the Virgin Money Optimism League, which tracks the sectors IFAs feel most optimistic about delivering healthy returns for their clients. Since the Virgin Money Investor Intentions Index was launched, confidence in Bonds has grown by 15%, from 68% in Q1 2008, to 83% in Q1 2009.

The Virgin Money Investor Intentions Index tracks 10 sectors in total. These are: UK shares, European shares, Green investments, Cash, Commodities, Property, Bonds, Far East, Emerging Markets and Gold. The Index details advice over the last 3 months and investment intentions for the next quarter.