This year’s FE Adviser Survey (Adviser Business Models – what lies beneath) looked at how advisers are managing their investment processes, to discover areas for improvement and to highlight best practice. Here, we look at one part of that process specifically – investment choices and which sectors advisers have increased their exposure to.
The data below is from questionnaires completed by over 130 advisers during the period November 2017 to January 2018 as well as other market data from FE Analytics. It also references data since the survey took place.
The winners and losers
One of the things that this report was looking to analyse was which markets advisers have been increasing and decreasing their exposure to since the last survey was conducted. The data showed that there was a clear trend for advisers to move assets away from the UK equity market. Perhaps this is predictable given the current climate, with potential for significant currency risk, and specific business risk for certain UK companies if the Brexit process results in an unfavourable deal. The table below demonstrates how advisers who responded to the survey have changed their allocations towards different markets.
It is likely that anxiety over Brexit is impacting advisers’ asset allocation, with almost a third (30%) reducing their UK equity exposure between July and December 2017, while on the other hand, exposure to European equities increased by 45%.
We spoke to Charles Younes, FE research manager who explains: “2017 was somewhat of a turning point for European markets. General elections across Europe gave confidence to consumers and businesses, particularly that which saw Emmanuel Macron elected as French President. From that point onwards, Europe’s economy gained momentum and has recorded a significantly stronger level of growth to date.
Funds and Sectors most researched
Along with the sectors advisers are looking to expose their clients to, the report also highlights which funds advisers wanted to know more about. FE Analytics data on the most researched funds for the year January to December 2017 proves the point that there is increased exposure to Europe, with Jupiter’s Europe Excluding UK fund by far the most researched by advisers. It was researched on 44% more occasions than the second most searched for - Fundsmith Equity fund. Fundsmith Equity and LF Woodford Equity Income came second and third in the list, as they very often do, given their size and stature.
According to up-to-date figures, the situation has changed but very little. Again, using data from FE Analytics, in the period January to June 2018, Jupiter’s Europe Excluding UK fund is still in the top five on the list, while Fundsmith Equity and LF Woodford Equity Income now occupy first and third respectively.
In terms of sectors most researched, despite allocations going away from the UK, UK Equities including Income and UK All Companies made up the biggest percentage of the 50 most researched funds in the period January to September 2017, at around 20% of all searches. This remains the case for January to June 2018, with UK Equities including Income and UK All Companies making up 25% of all searches. This is most likely due to a bias towards the advisers’ home market and the fact that they are always monitoring it in case the tide changes.
Corporate Bonds and Gilts have also fallen out of favour according to the report; only three featured in the 2017 most researched fund list, while two featured in the list for January to June 2018. This comes despite FE’s view that they offer some diversification benefits in the long term - as part of an overall portfolio - which is why they still feature in our FE Invest portfolios. Global emerging markets were the most favoured in our adviser survey, with just over half of advisers (51%) increasing their exposure.
Also affecting advisers’ decisions is an America with Donald Trump as President. The report states that advisers have had mixed views on the situation, with 22% increasing their exposure to US equities in the period July to December 2017, compared to 20% who reduced it. Meanwhile, only three US equities are included in the FE Analytics 50 most researched funds for January to July 2018, whereas five made the list for 2017.
The survey also shows that virtually no advisers increased their clients’ Gilt exposure due to expectations of interest rate increases, while 16% of advisers increased exposure to ethical investments.
Rob Gleeson, head of research at FE comments that: “What is clear from this year’s FE adviser report is that advisers’ instincts are in line with FE’s own analysis on Brexit and the UK’s investment potential in relation with to EU and the rest of the world. We think the political risk in Europe is receding following last year’s elections and we are seeing some favourable economic trends.”
It will be interesting to see, as the final Brexit date fast approaches, whether Advisers’ asset allocation decisions will change significantly.
Keep an eye out for more of our blog posts highlighting the most researched funds by advisers on FE Analytics, in order to stay up-to-date with adviser behaviour.