We recently had a read through of Calastone's latest fund flows data, because that's the rock and roll lifestyle we lead, and the slightly less than shocking revelation is that UK investors have been piling into US equities, almost to the detriment of every other asset class.
Their research finds that in the four months since December 2023, Brits have added more cash to North American equity funds than they have in the previous nine years combined.
Over the past four months they have thrown £6.69bn into US equities, compared to the £6.38bn invested since 2014, according to the report.
This year’s Q1 total was more than three times larger than the previous best quarter, Q4 2020.
As it happens, average exposure to the US in our database has also gone up in recent months and is now approaching 17 per cent. At the turn of the year it was just above 16 per cent and in September it was just above 15 per cent.
Of course, strong market performance will have helped push allocations up but there appears to be a trend here.
One of the markets which has lost out as a result is the UK, where average exposure has been on a downward trend.
Indeed according to Calastone's data the UK’s domestic woes were particularly stark. Outflows surged to £823m, their highest in over a year and March 2024 marked the 34th consecutive month of net sales.
Lots of markets have been rising in recent months - most notably the S&P 500. All this exuberance had Asset Allocator wondering whether we had entered bubble territory, though the allocators we spoke to recently are in almost unanimous agreement that we are not quite there yet.
But James Klempster, deputy head of multi-asset at Liontrust, was one of the more bearish voices in the arena.
“Our view is that the scale of the re-rating of these stocks may have accelerated past those which are justifiable by their fundamentals,” he said.
“We believe that investors in the US need to bear in mind the concentration and valuation of these stocks and should look for ways to actively diversify their allocations through measures such as use of smaller capitalisation companies and value stocks, for example.
"The magnificent seven may stay at an elevated valuation for some time to come but history suggests that, unless profitability runs to catch up with these valuations, these substantial rises in price will start to look unjustified by their fundamentals."
