Emma Ann Hughes  

Are advisers losing their nerve as Brexit beckons?

Emma Ann Hughes

Emma Ann Hughes

Any hope that advisers and their clients would keep calm and carry on as Brexit approaches seems to be cast in doubt by the latest sales data from FundsNetwork.

After the final quarter of 2018 saw the majority of asset classes falling into negative territories, FundsNetwork reported December saw continued strong demand for assets within the Global sector and the Volatility Managed sector which came in second and third place respectively.

The Fidelity Cash fund was revealed to be the overall bestselling fund on FundsNetwork.

Also this week a National Savings & Investments poll of 59 advisers in October showed security remains the top priority for advisers’ clients.

Since April 2018, NS&I's monthly poll of advisers has seen a growing number of advisers recommend their clients hold 20 per cent of their investment portfolio in cash deposits.

In October, more than a quarter (27 per cent) of respondents said they would recommend holding one fifth of an investment portfolio in cash deposits, compared with 23 per cent who said this in July and 18 per cent who said this in April.

But is this the right approach for advisers to be taking with their clients’ portfolios as Brexit looms ever closer on the horizon?

As Paul Richards, head of sales at FundsNetwork, points out there is nothing wrong with taking risk off the table if your client has a short-term cash need.

But, the amount that is being taken off the table and allocated towards more defensive assets is surprising given that most advisers pride themselves on providing long-term financial plans for their clients.

Mr Richards says: "The strong flows into cash funds are an indication that advisers and their clients are looking for short-term strategies to mitigate risk of loss and manage volatility. We expect defensive and diversified assets to predominate throughout 2019."

I think clients are clearly fearful of what is going to happen to their investments when the UK drops out of the European Union.

Undoubtedly market volatility is likely to continue and the risk of recession over the next 12 to 24 months is greater than it has been for a long while.

Top 10 adviser sales by fund via FundsNetwork

Rank

Fund Name

1

Fidelity Cash Fund

2

Legal & General Multi-Index 4 Fund

3

Royal London Cash Plus Fund

4

Fundsmith Equity

5

Franklin UK Equity Income Fund

6

Fidelity Index US Fund

7

Vanguard LifeStrategy 40% Equity Fund

8

Baillie Gifford Japanese

9

Legal & General Cash Trust

10

Vanguard LifeStrategy 60% Equity Fund

But most investment houses are currently claiming that unless there is an immediate need for cash your clients should continue to be invested.

Brexit isn't the end of the world and there are many active managers out there identifying potential investment opportunities whatever the outcome is of Prime Minister Theresa May's latest attempt to renegotiate the terms of the UK’s exit from the European Union.

As Nigel Bolton, co-chief investment officer of BlackRock's Active Equity Platform, notes, a lot has already been priced into equity markets, including a greater potential of recession than fundamentals currently point to.

Mr Bolton says: "We believe a selective, stock-focused approach could provide meaningful uplift to investors' portfolios in this higher volatility environment.