The findings highlight the traps associated with confirmation bias when it comes to investing, but behavioural economist Greg B Davies still recommended against asking your fund manager who they voted for in the Brexit referendum.
According to the Lloyds survey, London, the most pro-Remain region in the UK, has the most positive sentiment on Eurozone equities (15%) in the UK.
In contrast, the North, which includes Leave-voting regions Yorkshire and Humber, held the highest positive sentiment towards UK equities (15.9%) and the second most negative sentiment towards eurozone shares (-9.5%).
In the lead up to the Brexit referendum, the Remain campaign was branded “Project Fear” for its downbeat economic forecasts if the UK voted to Leave. Meanwhile, many in the Leave campaign argued the European Union, particularly peripheral Europe, was an economic basket case on the brink of collapse.
In the nearly two years since the referendum, the UK has not fallen into recession, as some in the Remain camp predicted, but its growth has failed to keep pace with the rest of the world, rising 1.5% in 2017, compared to 3% in the US and 2.5% in Germany.
Confirmation bias
Davies, who founded investor profiling business Oxford Risk, said the survey findings are an example of confirmation bias.
He said retail investors would more likely to be susceptible to the bias, but he “wouldn’t let the professionals of the hook”.
“We’re all likely to be susceptible in one way or another. Professionals are perhaps less so because it’s not their money and they’re more emotionally disengaged from the decisions they make. Secondly, they have around them more information, more data, more tools and more people checking their decisions.”
Davies said few wealth managers have processes in place to address their own behavioural biases.
“A good investment committee should be set up to institutionalise some sort of devil’s advocate in their decision process.”
Profiling tools can identify a professional investor’s financial personality and highlight the biases they are more susceptible to, he added.
UK bears
“The Brexit vote was highly polarising and it is bound to cloud investors’ views,” Tilney managing director Jason Hollands said.
“It is difficult to identify a bias in the behaviour of fund management professionals since we do not know how they may have voted, but the consensus opinion is undoubtedly cautious towards the UK,” Hollands said.
The possibility of a hard-Left government led by Jeremy Corbyn was also playing on investors’ minds, Hollands said.
On Monday, one of the UK’s main business lobbies argued Labour’s nationalisation plans rank alongside a hard Brexit for their “damaging impact on the UK economy and reputation.”
Chelsea Financial Services managing director Darius McDermott said “quite a lot” of fund managers voted Leave, which had surprised him due to the fact the industry was likely to suffer from Brexit.
However, McDermott did not think it had resulted in behavioural bias or that Leave voting managers were more overweight in UK equities.
Loaded question
Despite the possible biases inherent in investment, Davies warned against wealth managers asking fund managers who they voted for in the referendum.
“There’s so much baggage that comes with the question, you can imagine that derailing a sensible, professional conversation in all sorts of ways.”
The information could then play into the wealth manager’s own professional biases.
“If I find my fund manager disagrees with me on Brexit I may start discounting them even if it’s not related to their professional skill. If I find they do agree with me, suddenly I find they’re much smarter than they really are and I place too much trust in them.”
