While one in four advisers took the opinion that UK equities will generate the best returns for clients over a three-to-five year period, a further 24% view the UK as the most overvalued asset class.
Those who were positive on the asset class focused on economic fundamentals, the exposure of UK companies to global markets and the potential for an improving situation as Brexit negotiations progress.
Meanwhile those who expressed caution were concerned about recent falls in sterling and the potential for a market correction in light of ongoing Brexit uncertainty.
The research is in-line with two sets of findings released last week showing that investors are cautious on the near-term prospects for the UK. On Thursday, Hargreaves Lansdown published the latest findings of its Investor Confidence Index, which showed the UK was the regional stock market with the lowest confidence, with a score of 56.8%.
Laith Khalaf, senior economist at Hargreaves Lansdown, explained: “Part of the problem is the economic climate in the UK is not conducive to optimism, with growth falling and consumer incomes under pressure. Ten years on from the start of the financial crisis, investors are also more guarded than they were about letting high spirits get the better of them.”
Meanwhile according to the August BofA Merrill Lynch fund manager survey, global fund managers cut their allocation to UK equities to its lowest level since November 2008, increasing 8 percentage points from July’s 30% underweight, to a net 38% in August.
So what do the fund buyers think?
Chris Metcalfe, investment director at IBOSS Asset Management, says while it has moderated its UK holdings since Brexit, it has been only marginally and driven by attempts to neutralise the currency exposure rather than being a statement about the UK economy per se.
For example it has raised its exposure to larger cap holdings which have benefitted from the general sterling devaluation.
“Holding FTSE 100 stocks, either actively or passively, is the equivalent of holding 70% quasi-international stocks,” said Metcalfe. “We feel if anything the FTSE 100 is undervalued compared with many developed markets especially some tech heavy US indices and we expect to maintain our UK current holdings.”
Away from explicit large cap funds IBOSS favours active all-cap managers such as Slater Growth and Unicorn Outstanding British Companies.
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