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Adviser Fund Index

For commentators, the discussion on Britain has been one of declining global influence for much of the past half-century. In the wake of the financial crisis, many voices can now be heard prophesying a similar fate for the country’s economy in the years to come.

In May 2007, British equities represen-ted 40 per cent of the aggressive portfolio, 42 per cent of the balanced and 35 per cent of the cautious. Bar a couple of temporary blips, these weightings have been reduced during each rebalancing, falling to 26 per cent, 26 per cent and 25 per cent respectively in November this year.

The falls suggest panellists have been reallocating their portfolios towards markets where they see better prospects for growth. While Britain has fallen out of favour, the Asia Pacific region has gone from representing 11 per cent of the aggressive portfolio, 7 per cent of the balanced and 2 per cent of the cautious to 16 per cent, 9 per cent and 4 per cent respectively. There has also been a noticeable increase in allocation towards the so-called “other international equities” across the portfolios.

Chartwell investment research manager and AFI panellist James Davies says: “We are less exposed to the UK than we were a few years ago. We have been moving towards a more globally diversified portfolio.”

The combination of concerns surrounding developed economies and strong emerging market performance has seen assets in emerging market products swell significantly and caused the erosion of some of the domestic bias that characterised portfolio construction in the past. What many inv-estors are doing is not moving wholesale into emerging markets but reflecting the growing presence of these markets in the global economy better in their portfolios.

With the allocation towards Britain in the AFI portfolios seemingly heading towards 20 per cent, a 50 per cent reduction from 2007, there are notes of caution.
Hargreaves Lansdown investment manager Ben Yearsley says: “The scale of the move surprises me. People have been moving away from the UK but I would expect the move to be more like 40 per cent to 35 per cent over that timeframe. It looks like chasing returns.”

Although the financial crisis has sharpened the focus onto strongly growing emerging economies and away from languishing developed markets, optimism must be constrained by a robust risk analysis.

Few would now argue against allowing China having a place in an investment portfolio. Equally few, however, can reasonably suggest that investing in the country comes without risk. Over 2008, Britain’s FTSE 100 index had its worst year on record, falling by 31.3 per cent, whereas the Shanghai Stock Exchange ended the year 65.2 per cent down.

The falls did not undermine the case for investing in the country but it was a stark reminder that there are no one-way bets.

Data supplied by Financial Express

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