InvestmentsAug 11 2014

UK equities favoured by wealth managers

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Wealth managers are overwhelmingly positive on the prospects for UK equity returns in the next 12 months, in spite of strong market rallies in recent years.

The latest survey of wealth manager sentiment from Asset Risk Consultants (Arc) found that wealth manager sentiment towards equities had increased in the second quarter.

Following a drop in sentiment towards equities in the first quarter, the most recent survey, in June, found 74 per cent of wealth managers were positive about the prospects for equity market returns in the next year.

A further 20 per cent described their outlook for equities as neutral, while only 6 per cent had a negative view on equities.

These results contrast with the survey’s findings five years ago, when the bull market for equities, following the crisis, was moving into full swing.

While managers had moved to a net positive stance on equities by that point, the level of sentiment was significantly lower than it is today, even though the FTSE All-Share index has delivered a total return of nearly 100 per cent in the intervening five years.

In its commentary on the survey, Arc questioned whether the current views on equity markets were a case of the “wisdom of crowds” or investors going “mad in herds”.

The report compared James Surowiecki’s contention in his book The Wisdom of Crowds, in which the American author posits that groups are “remarkably intelligent”, with Charles McKay’s classic view that people think in terms of herds and “go mad in herds”.

The report said: “If a crowd of investment managers drawn from around the world can be deemed to be wise, the prospects for equity markets for the next 12 months are as rosy now as they were five years ago, despite the fact that equity markets have risen strongly.”

But it added: “However, there is a growing body of thought that an equity market correction of at least 15 per cent is both overdue and imminent.

“If enough investors believe in this thesis, it will undoubtedly become self-fulfilling as the herd stampedes for the exit.”

While wealth manager sentiment towards equities rose in the second quarter, sentiment dropped for all other major asset classes.

Bonds, alternatives, cash and gold all saw a decline in sentiment in the period, with bonds, cash and gold remaining firmly in the negative territory.

Only 4 per cent of the managers surveyed had a positive outlook for bonds in the next 12 months, compared to 61 per cent with a negative viewpoint.

The alternatives sector is the only other asset class to have a net positive result, although more managers have a neutral outlook – 44 per cent – for the asset class than those with a positive outlook, 39 per cent.