All three Adviser Fund Indices are underweight in UK equities compared with the corresponding Apcims portfolios.At the last rebalancing point in May, the Aggressive and Balanced AFIs had allocations of 45 per cent in domestic shares, with the Cautious AFI on 35 per cent. This compares with weightings of 55, 50 and 47.5 per cent respectively for the Apcims growth, balanced and income portfolios. However, when viewed alongside the MSCI All Country World index, the AFIs are significantly overweight in UK equities. As at September 15, the UK accounted for just 10 per cent of the index, according to MSCI Barra. The overweight positions in UK equities are funded by big underweight positions in US shares. US equities comprise just 9, 6 and 3 per cent of the Aggressive, Balanced and Cautious AFIs compared with a weighting of 46 per cent in the MSCI index. Keith Wade, chief economist at Schroders, says while constructing portfolios based on MSCI indices is not a sensible strategy, overseas exposure in the AFIs is low. Schroders is currently overweight in US equities and Wade has a largely positive outlook for the US economy. He says: “We are expecting a soft landing. It hinges on the housing market, where there could be a hard landing, but we do not expect this to affect the wider economy. We would compare it with the UK housing market, which was booming three or four years ago. A lot of economies were worried that a slowdown would cause a recession in the UK but we have seen a soft landing. There are a few similarities with the US and a slowing housing market does not necessarily mean consumption will be weak.” Anna Bowes, investment manager at AWD Chase de Vere, argues that a high proportion in UK equities does not necessarily mean a lack of geographical diversity. She says UK companies offer international exposure without currency risk. “If currencies are not hedged back to sterling, it is an ongoing fluctuation. Investing in stocks is one thing but trying to judge currency movements is completely diff- erent,” she adds. Bowes points to the large number of UK companies that generate earnings overseas. According to a paper published by AWD Chase de Vere on September 11 entitled, The great UK blue chip – not so red, white and blue, just 38 per cent of sales by FTSE 100 companies are made in the UK, based on sales data compiled by Schroders and Citigroup. Almost one quarter of FTSE 100 constituents make 80 per cent of their sales overseas. Eight FTSE 100 stocks, including Cairn Energy, Rio Tinto and Kazakhmys, the Kazakhstani copper producer, have no reliance on UK sales at all.