UK investors are still placing huge amounts of their portfolios in UK equities, despite a run of long-term underperformance, research from Quilter Investors revealed.
While the UK has been one of the better performing regions in 2021, according to data from FE Analytics over five years as of 7 July 2021, with a return of 29.6% the FTSE 100 lags behind the S&P 500 (91%), Euro Stoxx (71.5%), MSCI Emerging Markets (67.6%) and Nikkei 225 (60.9%) indices in the performance rankings.
It was also the worst performing region in 2020.
Despite this, a Quilter survey of people with at least £60,000 ($82,665, €70,000) in investible assets found that 64% of UK investors have a quarter of their portfolio invested in UK equities. Nearly half (46%) had more than 50% invested in the UK, despite the fact that the UK accounts for just 3.81% of the MSCI’s flagship All Countries World Index, compared with 57.8% for the US.
Those investors who had a financial adviser were also found to have a higher tendency towards home bias. The survey showed that more than eight in 10 of advised investors who claimed to know where their money was invested had 25% or more in the UK, while 56% had at least 50%.
Diversify countries not just assets
Commenting on the findings, Danny Knight, head of investment directors at Quilter Investors, said investors need to be careful they aren’t holding too much in just one region.
He added: “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.”
Whilst Knight acknowledges that the UK does look attractive as a result of the vaccine rollout, he said that long-term structural problems remain, meaning it would prudent for investors 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 out of this opportunity,” he said.
“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 growth and send demand,” he added. “Ensuring you don’t have a home bias will be important to get the most of this rebound.”
