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Investors tap into global growth plays through UK companies

Investors have endured months of uncertainty because of eurozone debt fears and the FE AFI aggressive index rebalancing shows that panellists have favoured allocations to domestic companies rather than those abroad.

Several events tested investor resolve between the index rebalancing in May and November.

Greece is at the root of the problems in Europe. Having already received two bailouts, it became apparent the country needed more money and a substantial restructuring of its debts so that it could continue meeting its commitments.

In October, when European politicians seemed to have finally sealed an agreement that would provide an opportunity for Greece to restructure its debt, Greece’s prime minister George Papandreou unexpectedly announced he would take the proposals to his electorate in a referendum.

However, other fears are adding to investor woes. Italy, which has been looking fragile for much of this year, saw its cost of borrowing reach crisis levels several times over the past few months. Last week, 10-year government bond yields reached upwards of 7 per cent.

During times of worldwide volatility, home opportunities are usually more appealing as they are perceived to be a cautious stance. However, the shift towards domestic stocks does not show signs of being a purely UK play, according to FE AFI panellists.

Whitechurch Securities head of research Ben Willis says: “There are some globally focused companies based in the UK so it could be a global growth play while returning to the perceived safety of home companies.”

UK equity allocations in the aggressive index have been rising steadily since May 2010, up from 25 per cent to 29 per cent.

During the 2011 rebalancing, UK equity allocations increased by one percentage point. During the same period, global equity weightings have all fallen, with Asia and Pacific weightings dropping from 21 per cent to 20 per cent, European equities down from 12 per cent to 10 per cent and US equities from 14 per cent to 13 per cent.

Regional allocations tell a similar story. Allocations to the UK jumped by four percentage points, from 30 per cent to 34 per cent, while allocations to the rest of the world fell from 70 per cent to 66 per cent.

Conversely, of the top five most highly ranked funds ejected during the latest rebalancing, three were UK-related products: Artemis UK special situations, M&G UK select and CF Octopus absolute UK equity.

Meanwhile, the top five funds chosen by the panel were First State Asia Pacific leaders, Schroder UK alpha plus, M&G global basics, GLG Japan core alpha and Neptune European opportunities.

Data supplied by FE



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