Post-Brexit and the subsequent rate cut, investors may be turning tail on cash and heading back to stocks and shares Isas, financial advisers have claimed.
With cash rates taking another turn for the worse after the Bank of England cut rates to 0.25 per cent on 4 August, and amid nervousness around UK commercial property, investors may start returning to the stock market, according to Drewberry Wealth director Tom Conner.
“The last few years may have offered attractive rates to deposit investors and encouraged many households to take out multiple accounts but this era is coming to an end,” he stated.
With interest rates evaporating the risks are increasingly stacked against deposit investors Tom Conner“Faced with potentially negative returns in the coming years, we think that many deposit investors will now be looking toward stock markets as an alternative.”
Volatility in the first few weeks post referendum vote on 23 June caused huge sell-offs in the FTSE 250 - the mid-cap index - in particular.
Although they have recovered strongly - the FTSE 100 is now up at 6832.49 as at close of markets yesterday (22 August) - some investors seeking strong UK domestic economy plays may have been put off investing directly into FTSE 250 trackers or individual stocks.
However, Mr Conner said instead of heading for blue-chip or FTSE 250 tracking funds, investors may choose multi-managed or multi-asset funds instead, allowing a fund manager to decide on the allocation to the UK and manage the investment exposure for them.
“With even moderately risk-rated multi-asset funds returning approximately 9 per cent to 10 per cent over the last year, there is a clear lure for bank savers looking for a better return.
“These may once have been seen as too risky, but with interest rates evaporating, the risks are increasingly stacked against deposit investors. These investors may now be more tempted by a stocks and shares Isa than ever before.”
This view was supported by a poll carried out by FTAdviser Advantage, in association with BlackRock, which found most financial advisers are giving clients exposure to UK equities through multi-asset funds.
The poll found 43 per cent were recommending multi-asset funds, with only 10 per cent recommending a FTSE 100 tracker and 14 per cent recommending a FTSE 250 tracker.
Mr Conner said: “Given how notoriously hard it is to time the markets, for those that are new to market-based investments that are considering switching money out of safer bank deposits, it often makes sense to drip feed money across over time rather than making large lump-sum investments.”
