Investors have had little respite from uncertainty in 2020 and face more of the same looking forward, according to Schroders’ head of UK intermediary.
Doug Abbott told FTAdviser it was “unsurprising” that investors were reviewing their lives and their portfolios as the turn of year approaches, as the “list of reasons for investor uncertainty heading into 2021 remains long”.
He said: “A global pandemic, lockdowns, volatile markets, political turbulence, uncertainty over jobs and the economy.
“Record levels of government borrowing - and questions over how it will be repaid. Lower interest rates - and talk of them turning negative. Working from home.
“Given all this, it’s perhaps unsurprising that investors are now reviewing all aspects of their lives, not just their portfolios.”
But, according to Mr Abbott, more opportunities may be about to emerge.
UK equities
Among the list of uncertainties facing investors in 2020 was whether UK equities would experience a long-anticipated bounce back, Mr Abbott said.
The idea of UK equities coming back into fashion, most likely off the back of a ‘value’ turnaround, has been long-discussed, particularly in light of a potential global economic recovery.
Mr Abbott said: “With Brexit negotiations reaching their denouement, it may be about to happen.
“Financial advisers could be sensing a reversal of fortunes in the not too distant future.”
According to the Schroders Financial Adviser survey, there has been a significant change in the number of advisers looking to UK equities going into 2021.
While 65 per cent of those polled had decreased UK allocations over the last 12 months, 40 per cent were looking to increase their UK weighting in the months ahead.
Mr Abbott added: “Our survey showed advisers consider ‘recovery from Covid-19’ to be a distinct investable theme. So a preference for UK equities is perhaps unsurprising, given the market has been one of the major regional market laggards of 2020.
“While the response to the recent vaccine breakthrough has helped close this gap, UK equities still remain in negative territory year-to-date, and some way behind other equity markets.”
‘Accelerating, inescapable trends’
Mr Abbott also urged advisers not to overlook the significance of the “many changes” which were already underway before the crisis and were accelerated as a result of it.
He said: “Covid-19 has accelerated technological change and other important trends. E-commerce has raced ahead since the start of 2020, seemingly making years of progress in a matter of months.
“Consumption trends have changed dramatically, with some changes potentially here to stay.”
Covid-19 trends were of less benefit to other industries, however. Mr Abbott said the crisis had accelerated the “challenges” faced by investors in offices and retail property, with many companies deciding that working from home two-to-three days a week would be the “new normal”.
But he added: “Could data centres and other beneficiaries of the modern economy become mainstream in five years’ time, with retail and offices seen as the alternative property asset to own? It’s an interesting question.”
ESG moving to centre stage
2020 could well go down in history as the “year of ESG”, commentators have claimed, as inflows into sustainable investment products have soared this year.
Mr Abbott agreed. He said: “We can all see in our daily lives the growing importance of ESG considerations.
“Unsurprisingly, these considerations are also being reflected in the way custodians of our assets manage them.”
Almost three quarters of advisers polled by Schroders said they now explicitly considered ESG factors when selecting funds for clients, up from less than half in November 2019.
ESG investing has boomed in popularity in recent years as fears over climate change have led investors to consider the impact of their money and as a growing number of millennials have begun investing.
Recent data from the Investment Association shows inflows into ESG funds have quadrupled in 2020 so far, with £7.1bn invested in such funds in the first three quarters of this year compared with £1.9bn last year.
Mr Abbott argued that Covid-19 had played a role in this, saying the crisis had “highlighted for advisory clients why ESG is important and increased awareness”.
imogen.tew@ft.com
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