The move towards international equities has been steady and significant throughout recent years but what are the specific reasons for the popularity of global asset allocation?
Statistics from the Wealth Management Association show major moves to international shares within portfolios over recent years, which has seen the percentage of UK assets in international equities increase by up to almost three times, depending on risk rating.
The FTSE WMA Private Investor Indices shows investors seeking income have seen international asset allocation rise 12.5 percentage points from 5 per cent to 17.5 per cent between June 1997 and November 2013.
During this time UK equity assets have slipped from 50 per cent allocation to 37.5 per cent.
Growth portfolios have seen international equities increase their allocation from 30 per cent to 37.5 per cent and balanced portfolios international exposure increase from 22.5 per cent to 30 per cent over the 16-year period.
The majority of the increase has been taken from UK equities while predictably bonds have also seen significant outflows over that time.
Invesco Perpetual chief investment officer Nick Mustoe says the development of the equity market from segregated regional funds to diversified global equity mandates has increased the attractiveness of the funds to investors, while also reducing the risk through allocation across various countries, sectors and stocks.
He says: “Today, integrated global equity mandates which encompass developed and emerging markets could be said to offer a broader spread of securities. Of course, diversifying globally by selecting best-in-class opportunities among individual stocks, regardless of geographic boundaries, is nothing new for many fund management houses. It has the potential to provide excess returns in addition to offering greater diversification benefits.”
M&G global head of sales Jonathan Willcocks says since 2000 global equities have been propelled into the spotlight for investors.
Willcocks says: “UK investors certainly got the global equity bug at the start of the noughties and, these days, what well-diversified portfolio wouldn’t have a healthy allocation to well-managed global funds?
In the middle of the last decade it seemed clear the world’s equity markets offered sufficient numbers of dividend achievers and, in emerging markets, sufficient stocks run for
the benefit of shareholders to warrant new funds.”
Chelsea Financial Services managing director Darius McDermott says recent pessimism surrounding UK opportunities has pushed advisers and investors to look to other jurisdictions.
He says: “More recently, with the search for income, overseas income has been an extra option for investors and has increased in popularity – both for bonds and equities.
“There was also a lot of doom and gloom around the UK economy and if investors were not concentrating on UK companies that had overseas exposure, they were investing directly overseas where the outlook was a little better.”
Schroders global and international equities lead portfolio manager Simon Webber thinks global equities are currently offering very attractive valuations.
He says: “Investing internationally means you are able to access a much wider range of valuations. We are now seeing some compelling valuations in the eurozone coming from the depths of recession.”
But Thomas and Thomas Financial Services managing director Darren Lloyd Thomas says the good times to move into international equities may have gone and investors should be looking closer to home.
“People could have been forgiven a few years ago for not really looking at UK-based stocks but recently there has been good performance and it is something people should be considering more.
“When you look at global shares there is much higher risk both in terms of currency and politics so there is still a lot to be said for ensuring you have UK equity investments as well.”
BlackRock chief investment strategist Russ Koesterich believes investors should look beyond the US market to global stocks with exposure to Japan and Europe.
“For those investors who have been overly focused on US stocks, we would suggest increasing exposures to international equities – specifically to the other large developed markets of Europe and Japan. In fact, we would recommend overweight positions to both of those regions.”
Percentage of UK assets by asset class (Source: WMA):