Professional investors in the UK believe geopolitical conflicts are the biggest risk facing their portfolios in the next year.
Some 71 per cent of 600 investors polled by WisdomTree said conflicts were their biggest concern, with a global recession in second place with 63 per cent and inflation in third with 62 per cent.
The concerns over geopolitical risk, brought into light by Russia’s recent invasion of Ukraine, has led 43 per cent of professional investors’ clients in the UK to reduce their risk appetite.
However, 49 per cent said they were still comfortable with the same level of risk.
In Europe, 60 per cent of professional investors said their clients wanted to take on less risk across their portfolios.
The headwinds facing investors’ portfolios this year have felt relentlessNitesh Shah, WisdomTreeTo deal with this uncertainty, 89 per cent of UK investors have allocated more to equities, 57 per cent to inflation-linked bonds, and 31 per cent to commodities.
Head of quantitative research and multi-asset solutions, Europe, WisdomTree, Pierre Debru said delivering returns in the current environment was particularly challenging, with stock markets and bonds suffering deep losses this year.
“There are still tools that investors can use to seek downside protection, weather the storm and grow for the long term,” he said.
“High-quality companies with high profitability combined with solid dividend paying credentials appear to tick most of the boxes.”
Possible escalation of conflict
The potential escalation of tensions between China and Taiwan has added to the tense political landscape, said head of commodities and macroeconomic research, Europe, at WisdomTree, Nitesh Shah.
“The headwinds facing investors’ portfolios this year have felt relentless and with no clarity on how long the risks being faced will last investors need to prepare for more uncertainty,” he said.
Shah added that sentiment was very risk-off at the moment, as investors do not like uncertainty.
Inflation is also a big concern for professional investors, though 59 per cent of those surveyed believe the rate of inflation will peak next year.
Of these, 26 per cent believed the peak will be in March, though 10 per cent think it will peak in December.
Over a fifth (22 per cent) of investors thought interest rates in the UK will hit 4 per cent within a year.
sally.hickey@ft.com
