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UK bias to property still exists in investor portfolios

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UK investors still show a bias to British stocks despite persistent long-term underperformance, new research from Quilter Investors has shown.

The survey of people with at least GBP60,000 in investible assets found that of those who claim to know where they’re invested, some 64 per cent have more than 25 per cent of their portfolio invested in the UK – the worst performing major equity market of 2020 – and around 8 per cent claim to have all their eggs in the UK’s basket. Nearly half (46 per cent) had more than 50 per cent of their investments in the UK.

This is despite the UK making up a relatively small part of global market indices. The latest factsheet for MSCI’s flagship ACWI Index showed the UK accounts for just 3.81 per cent of the index, compared to 57.84 per cent for the United States.

The performance of UK stock markets has lagged behind global peers over recent years as a result of the pandemic and the fallout from the EU referendum in 2016.

The research found just over a third (36 per cent) had less than 25 per cent of their portfolio invested in the UK. Meanwhile, there were over a quarter (26 per cent) of those surveyed that did not know where their money was invested.

Those investors who had a financial adviser were also found to have a higher tendency towards home bias with their portfolios. More than eight in 10 (82 per cent) of advised investors who claimed to know where their money was invested had 25 per cent or more in the UK, while more than half (56 per cent) had at least 50 per cent.

Danny Knight, head of investment directors at Quilter Investors, says: “There is great efficacy in holding a sterling-based portfolio as this helps to remove the currency risk associated with holding overseas investments. Naturally this will lead to a higher UK exposure to other regions, but investors need to be careful they aren’t holding too much with just one region, even if is your own country.

“We know that financial advisers help espouse the benefits of diversification to clients, however, as we can see even this might mean a home bias still exists. That said, many direct investors may not necessarily have a home bias but are instead being drawn to some of the riskier areas of the market instead such as US tech and have all their eggs in one basket there.

“While the UK does look attractive as a result of the vaccine rollout, long-term structural issues remain, so investors would be prudent to take advantage of tactical opportunities. The biggest opportunity set is in the small and mid-cap space right now, so taking an active approach could be the best way to get the most of this opportunity.

“But as ever, global diversification is as important as asset class diversification, and given how we expect the global recovery to play out it will not just be the UK that will see strong economic growth and demand. Ensuring you don’t have a home bias will be important to make the most of this rebound.”
 

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