Domestic investors remain biased

14 July 2021

UK investors are still biased towards British stocks despite long-term underperformance, according to research from Quilter Investors.

A survey of investors with at least £60,000 in investible assets found that some 64% have more than a quarter of their portfolio invested in the UK – the worst performing major equity market of 2020.

In addition, nearly half (46%) have more than 50% of their investments in the UK, while 8% have opted to place all their investments in the UK.

The UK’s popularity comes despite the UK accounting for just 3.81% of the MSCI’s flagship ACWI Index, compared to 57.84% for the United States. The UK stock markets have also lagged behind global peers as a result of Brexit and the pandemic.

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

Danny Knight, head of investment directors at Quilter Investors, said“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 it 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.”

Knight said that while the UK’s recent vaccination success may make it look attractive, long-term structural issues remain and investors would be wise to take advantage of “tactical opportunities.”

Knight added: “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.”

Professional Paraplanner