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Advisers begin to reintroduce risk to portfolios as markets hit fresh highs

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Advisers began to allocate to equities again as markets continued to trade at record highs following the election of Joe Biden and the approval of vaccines to fight Covid-19, quarterly data from Quilter’s investment platform has found.

Analysis of Old Mutual Wealth’s data showed quarterly net flows into UK equities rose by 12.9 per cent, while European and North American equity inflows rose by 10.0 per cent and 9.3 per cent respectively. Meanwhile, despite emerging markets still suffering from net outflows, the pace reduced greatly compared to the third quarter.
 
Much of these flows appeared to be driven by the deployment of cash, a trend that has been evident since the build-up of funds following the first quarter of 2020, while property funds also saw sustained outflows following the reopening of a number of funds that had originally been suspended.
 
However, it is clear advisers are not yet prepared to be fully risk-on as many continue to allocate healthy sums to fixed interest funds. The UK fixed interest sector saw net inflows of 47.7 per cent over the quarter, as advisers looked to maintain defensive qualities to client portfolios. While international fixed income also rose by a similar margin.
 
Looking at the data across the whole year, equities did see net outflows in 2020 compared to fixed income as many advisers looked to protect clients from the extreme levels of volatility we saw in Q1 2020. However, this has started to be unwound as markets continue to rise as vaccines begin to be rolled out globally and global trade starts to return to normal.
 
Andy Miller, Investment Specialist at Quilter, says: “Markets have not only recovered but started to soar in recent months. However, we are still living in precarious times and advisers are acutely aware that volatility is never far from the door and have set their client’s portfolios up accordingly.
 
“With the costs of a third lockdown still uncalculated and the impact of the vaccine rollout yet to filter through, the economic outlook is still difficult to predict. However, more positively some of the other unknowns like the US presidential election and Brexit are now clearer giving investors a better view of the horizon.
 
“This has allowed many advisers to begin adding risk back to portfolios and increasing exposure to equities in order to capture the rally. With monetary policy remaining loose for some time and global risks removed from the table, we would expect this trend to continue into the first quarter of this year.
 
“But despite this, advisers are acutely aware of what could come after last year’s events and have constructed their portfolios to reflect the fact that 2021 still looks set to be unpredictable.”
 

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