Investment in UK equities has fallen to a record low proportion of equity allocation, accounting for just 29 per cent, according to the Investment Association.
The IA’s annual investment management survey, published today (September 24), showed that within equities, the UK allocation had fallen below 30 per cent for the first time, and down 18 percentage points from 10 years ago.
In turn, allocations to UK equity funds had declined substantially. As a proportion of total UK retail investor funds under management, UK equity funds have dropped from 39 per cent in 2005 to 14 per cent by June 2020.
The IA said the erosion of UK investors’ home bias was likely down to three factors: a more uncertain economic outlook for the UK as a result of the Brexit referendum; weaker total returns from the FTSE compared to global capital markets; and flat capital growth over a sustained period and the FTSE’s low exposure to higher growth sectors.
In the years preceding Brexit, sales to UK equities had been volatile. But since January 2016, when the referendum was announced, UK equities had seen sustained outflows of £12.7bn.
The UK’s low equity proportion is also governed by market movements, the IA said, and the total return delivered to investors by the FTSE All-Share was the lowest of the major markets in the last five years.
Meanwhile, the FTSE’s lack of exposure to technology, healthcare and communication services — which have rallied amid the coronavirus crisis — has hurt the UK over the past six months.
Such stocks make up just 20 per cent of the FTSE All-Share, compared to 50 per cent of the Russell 3000, its US counterpart.
Resilient in the face of headwinds
In general, the investment management industry was “resilient in the face of headwinds”, the IA report found.
Total investments managed in the UK grew by 10 per cent during 2019, and were close to pre-pandemic levels by summer 2020.
According to the IA, the continued growth in assets has “cemented” the UK’s global position as the second largest investment management centre in the world after the US, and by far the largest in Europe.
The pandemic had also teased out lessons, challenges and opportunities for the sector, the report found.
These included the fundamental importance of risk management, the necessity of investing further in technology and the growing significance of the diversity and inclusion agenda.
As the UK heads into a recession, the asset management industry also needed to define a clear role for the industry in the economic recovery and work out how to deliver value for customers in a difficult economic environment, the IA report said.