01 Aug As Funds Flow Out of UK Equities, Investors Are Seeking Alternative Asset Classes
May 2018 was not a good month for funds investing in UK equity. According to figures published by the Investment Association (AI), investors withdrew around £1.2bn over the month, representing the biggest outflow since the period following Britain’s vote to leave the EU back in 2016.
All companies funds saw the biggest outflow – £999m, to be precise – with £299m being taken out of equity income funds.
You could argue that none of this is surprising. The UK stock market has performed remarkably well since 2016, but with Britain’s official departure from the European Union now just a little more than eight months away, there is naturally a degree of nervousness, particularly regarding the future shape of trading relations between the two parties and the economic impact of an end game that could mean anything from the softest of soft Brexits to a no-deal scenario. And if that was causing nerves to jangle in May, political developments since then have raised the real possibility that any plan for Brexit – hard or soft – will it founder on Parliamentary arithmetic at home while also meeting resistance from negotiators in Brussels. None of this creates an encouraging climate for investment in UK equities.
But that’s not to say that investors are inclined to simply put their money under the mattress. In fact, as the IA figures show, a lot of active choices are being made as investors look around at the options available to them.
Overall, there was a positive flow of money into the IA funds sector, pushing the total sum under management to £1.2 trillion compared with £1.1 trillion a year earlier. But investors were re-calibrating their portfolios. For instance, there was more interest in absolute return funds – targeting positive results regardless of the market trends – while defensively oriented and overseas funds were also popular. In parallel, the IA also noted a renewed enthusiasm for bonds, which attracted a net inflow of £138m.
The underlying story is that the uncertainty surrounding Brexit is undoubtedly impacting on investment decisions – and that’s true of institutions and private individuals – but equally there is a lot of money searching for a home that will provide either safety in the face of economic storms or an opportunity for superior returns.
While we are currently living through this very particular point in the UK’s history – and one that might decide our economic direction for many years to come- even in more normal times, investors are regularly reviewing their portfolios in the light of changing economic circumstances, their own evolving objectives.
And in addition to the traditional investment classes – notably equities and bonds – investors have access to a range of alternative asset classes that is continuing to grow, including, of course, real estate, hedge funds, and VC/Private equity funds. Added to that there are often lucrative but also fun alternatives such as art, wine or coins.
Meanwhile, the Alternative Finance market has generated its own range of investment options, not least in the shape of equity crowdfunding and platform lending.
In the case of crowdfunding, the pioneering platforms were sold – at least in part – on the premise that this was a route for ‘armchair dragons’ to invest perhaps £10, £100 or £500 in companies that interested them. The armchair dragons exist, but they have been joined by VCs, Angels and High Net Worth Individuals. It’s been a similar story with platform lending, which arguably offers an opportunity for more reliable returns over the short and medium turn.
Risk and Return
But whether you are looking at alternative or more traditional investments, the same questions arise. Depending on your objectives and risk appetite, what asset classes should you buy into and what should the weighting between them be? Equally important, how do you ensure that your investments are as tax efficient as they can and should be, without slipping into the kind of aggressive tax avoidance that is increasingly being targeted by HMRC compliance teams.
Coming up with the right answers requires keeping a weather eye on the macro-economic background (particularly as it impacts on the performance of asset classes), investment trends and opportunities within well-established and emerging asset classes. But it’s equally important that any decisions on investment opportunities are mapped onto the requirements of the individual And no two investors are the same.
That’s why it so vitally important that wealth management companies offer advice and opportunities that are responsive to changing circumstances.
Every wealth manager has its own culture in this regard. The Route – City wealth club has created its service around a Members concept. Put simply, The Route has grown its wealth management operation organically, with existing Members recommending others. This has enabled an approach to wealth management that puts individuals at the centre, through regular reviews and genuinely bespoke advice.
There is also innovation. The Route offers a pathway both to traditional asset classes and alternative investment offers, some of which are unique. For instance, Members have an opportunity to invest in small and medium sized businesses via The Route – Finance’s Private Debt Platform. Sitting alongside, The Route – Property offers opportunities to buy into the UK residential market, with a strategy that is focused on regions where the best yields can be obtained.
The key is to provide Members with investments – traditional and alternative – that are not only attractive, but which also adapt to changing times and changing circumstances.
To find out more, telephone The Route on 020 3141 9040