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Moving away from home

Adviser Fund Index

Holdings in British equities within the Adviser Fund Index Aggressive index fell sharply in the four years to May 2011.

As British equities fell from 40 per cent in May 2007 to 27 per cent in May 2011, the biggest gains were made by Asia Pacific equities, which climbed from 11 per cent over the same period, according to Financial Express.

A large part of the shift away from home occurred in the early stages of the financial crisis in 2008. British equity weightings in the AFI Aggressive index fell from 35 per cent to 28 per cent between the May 2008 and November 2008 rebalancing. This period included the collapse of Lehman Brothers on Wall Street and a subsequent scare about a global recession. The FTSE 100 fell sharply, as did house prices and economic gloom became pervasive.

The shift away from domestic equities has occurred despite the recognition that many large British companies have a high international exposure. Advisers have become less concerned about where firms are domiciled.

AFH Independent Financial Services head of investment research Graham Toone says: “People used to invest in the UK stockmarket to gain exposure to the UK economy. Portfolios were predominantly weighted towards UK equities, but now it is more of a 50/50 split – it is a move to be globally focused without being too bothered where a company is listed.”

While exposure to British equities has clearly fallen, the pattern among different groupings of foreign equities is more mixed. Asia Pacific equities are the clear winner with a near doubling of holdings. On the other hand, holdings in other international equities have fallen sharply.

European equities showed fluctuations as confidence was lost and gained throughout the various stages of the eurozone crisis. Weightings dropped steeply at the beginning of 2009, before rising and falling once again. Overall, however, weightings to European equities fell from 15 per cent in May 2007 to 12 per cent at the May 2011 rebalancing.

North American equities have climbed slowly from 10 per cent after the May 2007 rebalancing to 14 per cent in May 2011.

Ashcourt Rowan head of fund research and AFI panellist Tim Cockerill says: “There had always been a home bias towards UK equities, but there are two factors to these movements. In 2008, when everything unravelled because of the credit crisis, there was a sudden ’flight to safety’ by investors. The obvious choice was emerging markets, which were doing well.

“But there was a turning point. At the beginning of 2011, emerging markets turned over and there was a slight shift back towards developed markets. When this shift happened, as Europe was going through its own crisis, the choice was American or British equities.”

Data supplied by Financial Express



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