Financial advisors have recommended investors with all risk attitudes increase exposure to UK equities, while saying cautious investors should scale back bonds.
However, the latest rebalancing of the FE Adviser Fund Index has seen a number of familiar names focused on the UK dropped from its three indices.
The AFI Aggressive index now has a 31.2 per cent allocation to UK equities, up from 28.8 per cent in February, while the Balanced index has moved from 25.7 per cent to 28.8 per cent. The Cautious index’s UK equities weighting has been lifted from 22 per cent to 25.6 per cent.
The outlook for the UK has improved markedly in recent months. The FTSE All Share rose more than 15 per cent in the opening seven months of 2013 while the Office for National Statistics recently estimated that the economy grew by 0.7 per cent in the second quarter.
Nigel Thomas’ £4bn Axa Framlington UK Select Opportunities, John Wood’s £1.2bn JOHCM UK Opportunities and Nick Train’s £707.7m Lindsell Train UK Equity funds are among the most popular UK-focused portfolios included on the AFI indices.
But several big funds have been removed from the AFI. These include Adam Avigdori’s £582.8m BlackRock UK Income, Paul Spencer’s £793m Franklin UK Mid Cap, Ben Whitmore’s £1.1bn Jupiter UK Special Situations, Robin Geffen’s £809.7m Neptune Income and Bill Mott’s £365.6m PSigma Income funds.
The Share Centre investment research analyst Helal Miah says: “We’re still positive on UK equities but would say that we’re not going to see another 10-15 per cent rise to the end of the year. We’ll probably see another couple of per cent but, if we’re lucky, the FTSE 100 could reach about 7,000. But two or three years down the line, I’d say you’d be happy to have invested at current levels.”
The AFI Cautious index also saw its fixed allocation cut from 38.27 per cent to 34.78 per cent in the latest rebalancing.
Ariel Bezalel’s £1.5bn Jupiter Strategic Bond fund is the top recommendation for cautious investors but Stephen Thariyan and Philip Payne’s £477.4m Henderson Sterling Bond, Iain Stealey, Nick Gartside and Robert Michele’s £616.1m JPM Strategic Bond and Stephen Snowden and Euan McNeil’s £624.4m Kames Investment Grade Bond funds have been dropped from the index.
Investors have become increasingly bearish on the future prospects for bonds on the likelihood that the Federal Reserve will soon start to ease the pace of its $85bn-a-month quantitative easing programme while many are awaiting the predicted great rotation from fixed income into equities.