A survey by Aegon UK has found that 27% of financial advisers feel UK equities will generate the best returns for their clients over a three to five year investment period, while the remaining 24% see UK equities as the most overvalued asset class.
Those with positive views about this asset class’ outcomes, base their views on economic fundamentals, exposure of UK companies to global markets and the potential for an improving situation as Brexit negotiations progress, while the most cautious seem to be concerned about recent sterling falls, as well as the potential for a market correction in the light of ongoing Brexit uncertainty.
The survey also found that emerging markets have proved to be a popular and attractive asset class for financial advisers, of whom 22% consider they will generate the best return over the medium to long term, encouraged by low valuations relative to developed markets and the belief that strong economic growth will come in response to global demand.
Gilts were considered the second most overvalued asset class – after UK equities – rated by 20% of the advisers surveyed who cited high valuations, buoyed by a prolonged period of quantitative easing.
In addition, 18% of advisers think that US equities are the most overvalued asset class. However, its rating has improved as it was picked thus by 38% four months ago.
In contrast, the research found advisers signalling confidence in European equities, with 20% considering the asset class will generate the best return for their clients over a three to five year investment period. Just 2% believe the asset class is the most overvalued.
Nick Dixon, investment director at Aegon UK, said: “There’s a clear split among advisers on the medium-term prospects for UK equities. For our part, we remain overweight to this asset class in our Core and Select Portfolios, which are managed in conjunction with Morningstar. While many developed asset classes look overvalued at present, UK equities feel better value on a relative basis. Market fundamentals remain broadly unchanged following the vote to leave the EU, despite speculative activity and the recent fall in sterling. For those that can invest in the medium to long-term the UK market remains attractive, as any short-term uncertainty caused by the nature of future trade deals with the European Union will only partially impact large cap companies, who are more likely to trade internationally.”