UKSep 30 2020

UK to suffer as Covid accelerates ‘globalisation’ of funds

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UK to suffer as Covid accelerates ‘globalisation’ of funds

UK equities are likely to continue to see outflows as the coronavirus crisis accelerates the globalisation of equity portfolios, according to Canada Life’s multi-asset expert.

Craig Rippe, head of multi-asset at Canada Life Asset Management, told FTAdviser the pandemic had pressed fast forward on a number of trends in the investment industry, including the move away from ‘home bias’ and the general shift from the UK market.

He said: “There tends to be a historic bias to a manager’s own equity market and increasingly, that’s seen as an unnecessary bias.

“This has hurt the UK, as the good parts of the UK market have dwindled out so...unless there is some specifically attractive about the UK then I don’t see why you would invest there.”

Mr Rippe said one of the typical attractions to the UK market was its high dividend yield, which has been severely reduced due to the coronavirus crisis, particularly from popular sectors such as energy and banking.

He added: “The UK was weak before the crisis, with Brexit sessions going sharply sideways. I’m also not optimistic on Sterling, so that makes it less attractive too.”

Allocating assets away from the UK has been an ongoing trend during the coronavirus crisis.

Helen Bradshaw, Quilter’s income manager, has moved funds out of the UK during the crisis while Thomas Rostron, CIO of Embark’s multi-asset fund range, told FTAdviser the funds’ exposure to the UK had been reduced in order to invest in other equity markets.

The proof is in the figures: UK funds saw net retail outflows of £912m in July, according to Investment Association data, while global, Asia and North America funds saw net inflows.

Mr Rostron said: “There are concerns about the outlook for the UK relative to other markets. It’s primarily regarding the openness of the UK economy and the recovery from Covid.

“It’s also simply because of the build of the FTSE. The UK stock market is heavily weighted to sectors that will remain sensitive to Covid - financials, commodities and property stocks.”

Mr Rippe agreed, noting that the UK’s lack of exposure to technology stocks had hurt its attractiveness during the crisis.

He said: “The move away from the UK is biased furthermore by technology. The S&P is driven by technology. At the moment, not being in tech is the same as underperforming, and the UK has very little tech exposure.”

As at yesterday (September 29), the S&P 500 is up 2.4 per cent since the beginning of the year as an unprecedented technology stock rally has seen the US index recover remarkably from the March crash.

By comparison, the FTSE 100 is still down 22 per cent compared with January.