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Improving adviser confidence in the UK economy sharpens focus on equities


Financial advisers’ optimism in the UK has significantly improved over the last year, with economic confidence levels increasing from 5.2 out of 10 at Q3 last year to 6.4 now, according to research by Skandia.

As well as confidence improving, advisers’ economic concerns have shifted this year. Whilst European debt is still seen as the biggest threat to the economy, this was only selected by a quarter (24.1 per cent) of respondents, in contrast to Q3 last year when two thirds (66 per cent) of advisers believed it was the most significant threat to stability. Advisers are now concerned about the impact of rising interest rates on the economy: at Q3 last year only 2.6 per cent of advisers highlighted this as a significant concern, compared to 21.5 per cent this year. 

The data suggests that concern highlighted over rising interest rates has resulted in advisers favouring equities over bonds. When asked to select the asset class most likely to deliver the best returns over the next year, the most popular choice was UK equities, selected by nearly a quarter (24.3 per cent) of respondents. This was followed in popularity by US equities, selected by just over one fifth (20.4 per cent) of respondents.

In contrast, nearly a third (30.8 per cent) of advisers believe that UK gilts will offer the worst returns over the next 12 months, making it the second most unpopular asset class behind cash, selected by nearly two fifths (38.2 per cent) of respondents.

The opinion of financial advisers is largely aligned to those of major UK fund groups, who have also reported a positive outlook for UK equities and a negative outlook for UK gilts.

James Millard (pictured), director of investments, says: “It is great to see that financial advisers are more optimistic about the state of the UK economy. With the FTSE All Share delivering returns of 18.9 per cent over the last year combined with strong economic data, it is understandable that advisers and fund groups are positive about the on-going performance of UK equities.

“Advisers are clearly looking to slightly higher risk asset classes that will deliver strong returns, but are favouring developed markets over emerging markets, which have been more volatile. Advisers are recognising the risk to their clients’ returns from traditionally lower risk asset classes such as cash and gilts given their low prospective yields relative to inflation.  However, despite the renewed confidence in the UK economy and the search for growth, it is clear that advisers are increasingly concerned about threats to portfolios, such as rising interest rates once QE begins to be withdrawn and how this will affect bond markets.”

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