Investors have withdrawn more than $20 billion (€17.5 billion) from UK-focused equity funds since the EU referendum in 2016 as concerns mount about the damaging impact of Brexit on Britain’s corporate sector.
Extreme uncertainty for business due to Brexit confusion plus the prospect of a hard left Labour government led by Jeremy Corbyn have tarnished the appeal of UK equity funds, which have haemorrhaged $20.6 billion of net outflows since June 2016, according to EPFR, a data provider.
Schroders, the London-listed asset manager, conducted a survey this month of 400 financial advisers who reported that 35 per cent of their clients had either moved assets out of the UK this year or were considering doing so, up from 21 per cent in the previous year’s survey. The US ranked as the top destination for money reallocated from UK assets. Japanese and emerging market equities also gained new business from the reallocations.
Just under nine out of 10 UK advisers cited Brexit as the biggest worry confronting their clients over the next 12 months.
“Brexit completely dominates the concerns highlighted by financial advisers,” said Philip Middleton, head of UK intermediary at Schroders.
Aversion to UK equities among international investors has risen as political tensions over Brexit have intensified ahead of the conclusion of negotiations with the EU.
Last month, the UK stock market was rated the least popular of 22 asset classes among global fund managers, according to a widely watched Bank of America Merrill Lynch survey.
Worries about Brexit were discussed at an event hosted earlier this month by UBS for large institutional investors overseeing trillions of dollars in assets.
Mark Haefele, global chief investment officer at UBS Wealth Management, said many of these sophisticated investors believed the UK’s financial markets were “not amenable to rational economic analysis”.
More international companies that operate with 90-day notice periods could cancel contracts with British business as the year end approaches if an agreement between the UK and EU is not concluded, warned UBS.
“The clock is ticking,” said Mr Haefele.
The FTSE All-Share index has fallen 9.7 per cent so far this year. The UK benchmark is still up 9.5 per cent since the Brexit vote in 2016.
Lucy Macdonald, chief investment officer for global equities at Allianz Global Investors, the €524 billion asset management arm of the German insurer, said: “The risks around Brexit are now better priced in but the concerns are real and largely unquantifiable so it seems better to wait as we could see more value appear in UK equities.”
Inigo Fraser-Jenkins, a senior analyst at the brokerage Bernstein, said the outlook for equities was dependent on unpredictable political forces that have left the UK stock market “close to uninvestable”.
“Investors simply have better options elsewhere,” said Mr Fraser-Jenkins. – Copyright The Financial Times Limited 2018