InvestmentsJul 8 2021

Advised investors have UK bias despite underperformance

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Advised investors have UK bias despite underperformance

A survey of investors found some 64 per cent had more than 25 per cent of their portfolio invested in the UK – the worst performing major equity market of 2020.

In addition, around 8 per cent claimed to have all their eggs in the UK’s basket while nearly half (46 per cent) had more than 50 per cent of their investments in the UK.

Quilter had polled more than 1,000 investors with at least £60,000 in investable assets, about 800 of which were able to comment on where their money was invested.

It found those who had a financial adviser had an even higher tendency towards home bias with their portfolios. 

More than eight in ten (82 per cent) of advised investors had 25 per cent or more in the UK, while more than half (56 per cent) had at least 50 per cent.

Danny Knight, head of investment directors at Quilter Investors, said: “We know that financial advisers help espouse the benefits of diversification to clients, however, as we can see even this might mean a home bias still exists. 

“There is great efficacy in holding a sterling-based portfolio as this helps to remove the currency risk associated with holding overseas investments. 

“Naturally this will lead to a higher UK exposure to other regions, but investors need to be careful they aren’t holding too much with just one region, even if it is your own country.”

The UK makes up a relatively small part of global market indices. 

The latest factsheet for MSCI’s flagship ACWI Index showed the UK accounts for just 3.81 per cent of the index, compared to 57.84 per cent for the United States.

Quilter said performance of UK stock markets had lagged behind global peers over recent years as a result of the pandemic and fallout from the EU referendum in 2016.

Knight said: “While the UK does look attractive as a result of the vaccine rollout, long-term structural issues remain, so investors would be prudent to take advantage of tactical opportunities.

“The biggest opportunity set is in the small and mid-cap space right now, so taking an active approach could be the best way to get the most of this opportunity."

He added: “But as ever, global diversification is as important as asset class diversification, and given how we expect the global recovery to play out it will not just be the UK that will see strong economic growth and demand.

"Ensuring you don’t have a home bias will be important to make the most of this rebound.”

But Philip J Milton, chartered wealth manager at Philip J Milton & Company, said: “I appreciate that ‘home bias’ seems old-fashioned but actually, investing in the currency where you pay your bills is still not so unwise."

He added: “We’re heftily UK dominated at the moment for clients, for a number of reasons which are not ‘only’ the traditional ones and the UK market offers international exposure through its components, for example FTSE100 earning 70 per cent from overseas.

“The UK market is too cheap compared to others, the US too dear. Sterling is too low against say the Euro and should continue to regain poise against the Dollar so all in all, what with our post-Brexit recovery and the domination of our markets by ‘value’ not ‘growth’, it’s a pretty great place to be in our book.  

“There could also be a global passives-led market collapse as well and we want to avoid the worst of that if we can.”

The research also found about a third (36 per cent) of investors had less than 25 per cent of their portfolio invested in the UK.

But about a quarter (26 per cent) of those surveyed said they did not know where their money was invested.

Tom Kean, director at Thameside Financial Planning, said: "There is a lot of debate about what makes a good asset allocation, and I’ve never read any kind of wide consensus on the numbers.

"What is too heavy UK for some, is too light for others. And as the research says, there are plenty of good reasons to be overweight UK.

"The UK looks like good value from most angles, just as long as some of the tail winds continue."

Justin King, independent financial adviser at MFP Wealth Management, added: "We have advised on global portfolios since 2000 and allocate a percentage to each country’s market cap," he said. “We exclude markets that are difficult to trade on because of liquidity and cost but our portfolios' country weighting look very similar to the AWCI. 

“Our clients have benefited from this approach but that was without skill from me, just that the normal weighting to the USA has been very beneficial.”

sonia.rach@ft.com

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