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Financial advisers sell off UK equities in first quarter

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Natixis Global Asset Management has offered a peek into allocation decisions made by financial advisers in their model portfolios in Q1 2015. Key findings include a significant reduction in equity holdings across all three portfolio types between Q4 2014 and Q1 2015 – the majority of which came out of UK equity funds.

The reasons for a reduction in UK equity funds included a tactical shift ahead of the general election in May combined with a wider strategic shift to de-risk portfolios after five years of strong equity returns.

The research found that alternatives and global equity funds were the main beneficiaries of UK equity reductions and advisers preferred corporate to government bonds amid on-going duration risk fears, as well as a continuing search for yield.
 
Natixis reports that flexible fixed income funds offered strong performance but little additional diversification benefit due to high correlation with corporate bonds over the first quarter of the year. “Advisers may need to step out of their comfort zones to achieve effective better diversification in their fixed income allocations” the report says.
 
Commenting on the new research, James Beaumont, Head of the Portfolio Research & Consulting Group at Natixis, said: “Overall, advisers did a good job for their clients in Q1 both in terms of risk and return. We hope that by reviewing the allocations being made, we can help advisers identify potential issues before they occur and help build more diverse portfolios by identifying uncorrelated assets.  
 
“For example, we found very high correlations between funds in the mainstream fixed income sectors, which could make portfolios more susceptible to losses in the event of adverse market conditions. This means advisers may have to look beyond the mainstream for sources of diversification within fixed income, such as emerging market or long/short debt funds.”
 
 

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