In focus - Markets
Brexit the top concern for UK end clients
A recent survey of UK financial advisers has exposed the depth of domestic investors’ Brexit concerns, while suggesting investment in UK equities could pick up again in 2019.
Investor concerns about Brexit have soared in 2018 according to Schroders’ annual Adviser Survey, completed by more than 400 financial advisers from across the UK.
90% of advisers said that the impact of Brexit was a concern for their clients for the next 12 months, up from 81% in 2017 and 71% in 2016. In contrast, only 20% of advisers said that rising interest rates were a concern for their clients.
Many advisers also have concerns about the impact of Brexit on their businesses, with 63% stating it will have a negative impact, up from 56% in 2017.
Philip Middleton, Head of UK Intermediary, Schroders commented:
“Financial advisers have a crucial role to play in helping investors navigate changing market conditions. It comes as no surprise that almost all of the advisers who took part in our annual Adviser Survey have discussed the potential implications of Brexit with their clients.”
The Brexit impact on investment decisions
The survey indicates that 70% of UK advisers’ clients are prepared to take less risk due to their Brexit concerns, with 23% increasing their allocation to cash.
13% of advisers’ clients have moved money out of UK assets in 2018 and a further 22% are currently considering doing so. 74% of those who have reallocated from UK assets in 2018 have invested in US assets, up from 22% in 2017. The percentage of people reallocating assets to Asia ex Japan and emerging markets has also risen sharply, with reallocation to Europe broadly flat.
Philip Middleton commented:
“It’s likely that Brexit concerns are playing a part in asset allocation decisions with some movement out of UK equities in the last 12 months. However, while there has been an increase in allocation to cash, which suggests that some clients have been looking to take risk off the table at a time of increased uncertainty, the greatest pick-up in allocation has been to equity opportunities beyond the domestic market.”
Could UK assets return to favour post Brexit?
Advisers were asked how they expect to change the portfolio asset allocation of their clients over the next year. Interestingly, more advisers expect to increase than decrease their allocation to UK equities. This could imply that some advisers expect that UK assets will begin to perform better when the UK finally leaves the European Union next year.
The other areas where more advisers expect to increase than decrease their asset allocation over the next twelve months are cash, developed international equity markets and emerging markets. Bonds are less favoured, with more advisers expecting to decrease than increase their allocation to government bonds. Meanwhile, the number of advisers expecting to increase or decrease their allocations to corporate bonds are broadly similar.
The survey produced some notable findings in other areas.
‘Running out of money for retirement’ biggest concern relating to pensions
Relating to pensions, 67% of advisers said that ‘running out of money’ was a concern for their clients. This was followed as the most cited concern by the ‘total amount needed for retirement’ (50%) and the ‘money they can take out each year’ (38%).
Encouragingly 73% of advisers now believe that their clients understand pension freedoms, up from 63% three years ago.
Index trackers used by most advisers – but sparingly
69% of advisers in the survey said that they use index trackers when constructing client portfolios, up from 65% five years ago. However, 82% of advisers currently have less than 25% of their clients’ assets in passively managed investments.
For more on Brexit, please see our recent article How the Brexit delay has moved markets - and what it means for the economy, featuring the opinions of Chief Economist Keith Wade and Fund Manager Sue Noffke.
For more on what lies ahead for the UK stockmarket, please see our article Outlook 2019: UK equities.