The Multi-Asset Fund team has shunned UK equities across its five-portfolio range in favour of the US on the belief that the domestic economy represents too small an opportunity set to deliver adequate returns.
Multi-Asset Fund III, the range’s balanced offering, has just 1.5% allocated to domestic stocks, and co-manager Paul Parascandalo (pictured above) is baffled why anyone would have a higher exposure when the UK brings relatively little to the global party.
He says: “The listed shares in the UK make up about 1% of listed shares around the world and the UK economy contributes about 3-4% of global GDP, so for a small opportunity set of companies and a small part of global GDP, why do people allocate so much to the UK?
“It isn’t about performance because for the past 20 years the UK market has not been the top performer on a single occasion.”
Parascandalo also believes the UK market is inherently biased towards resources and financials and does not have the added boon of a strong technology sector as seen in the US and certain emerging markets.
“The people investing in the Multi-Asset range already have their homes, jobs and businesses all at risk with regards to the UK economy, so is it right to have their investments and pensions with such a UK focus?
“We don’t think it makes sense, so we start from a global standpoint.”
All this is before we have even mentioned Brexit. Parascandalo’s co-manager on the Multi-Asset range, Thomas Wells (pictured below), is equally anti-UK based on the unknowns around Brexit and the subdued outlook for growth.
Wells says: “With regards to Brexit, when you have a divided Conservative party, a population that is divided and poor negotiations, it is difficult to know the outcome. A bad Brexit will be bad for the UK economy and a good Brexit outcome will be less worse.
“Being global means we don’t need to take a call on the UK. We are able to choose from the 3,500 global companies rather than the 350 in the UK.”
Passive exposure
The pair admits that being underweight UK is a consensus view but they reiterate that, based on their analysis, they struggle to see why anyone would move to neutral on the UK, let alone overweight.
The US is the preferred destination. As such, Multi-Asset Fund III has a 22% allocation to US equities. This raises three crucial questions for clients: is the US market expensive, what is their perspective on tech and how do they get exposure to the region?
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