Flight to quality or sit tight?

By Jennifer Hill, Personal Finance Correspondent

LONDON (Reuters) - Nervous investors are taking a "flight to quality" amid stock market volatility that has seen Britain's benchmark index shed almost 15 percent this year.

Despite a surge when markets reopened after the long Easter weekend, the FTSE 100 index could still be on track to clock up its worst three-monthly loss since the third quarter of 2002, and jittery investors are staging an exodus from equities to safer havens.

"We're seeing a huge amount of money going into cash and safer funds; absolute return-type funds are picking up a lot of money just now," said Graham Dow, head of investment development at Standard Life.

Industry statistics verify the trend. Retail assets under management fell by 7 percent in January as stock market turbulence led to a near halving in buying by private investors, latest figures from the Investment Management Association show.

Equities and property funds bore the brunt of the outflows, while bonds proved the most popular asset class.

Cash, bonds, income funds and natural resources continued to be flavour of the month in February, Fidelity FundsNetwork sales data shows.

The top 10 best-selling funds across all channels were: Invesco Perpetual high income, Jupiter Merlin income portfolio, Invesco Perpetual income, Fidelity cash, BlackRock UK absolute alpha, Invesco Perpetual corporate bond, JP Morgan natural resources, Invesco Perpetual monthly income plus, M&G recovery and Jupiter income trust.

"There's a diversification of risk going on," Dow told Reuters. "Investors are putting money into high value-type stocks: well-developed industries and companies that have got themselves into a position where they can pay out a dividend, and we're seeing more and more foreign companies doing so.