The 2019 Natixis Investment Managers UK Portfolio Barometer, an analysis of more than 50 model portfolios in the UK, has found that the financial advisers surveyed transferred almost 16% of their local allocations to global markets over the past year - as they sought out diversification and hedging against risks linked to Brexit and geopolitical uncertainty.
However, despite more global exposure, investors also exhibited a trend of becoming more risk averse. This resulted in herding towards safe havens, rather than adjusting portfolios to take advantage of rising global equities in 2019.
By asset class, this led IFAs to reduce allocation to global equities by 4.4%, instead increasing exposure to global fixed income (+3.1%) and alternatives (+3.7%).
Source: Natixis Portfolio Clarity
James Beaumont, international head of Multi Asset Portfolio Management, at Natixis Investment Managers, said: "Following a challenging end of 2018 for equities, IFAs materially decreased their allocation to equities in 2019, and even started to become more conservative in their domestic allocation. The Brexit process, leadership contest and general election shaped the political and economic landscape over the year and outflows from GBP denominated assets show UK investors were feeling the heat of the continued uncertain investment outlook."
"Despite a more globalised approach to asset allocation, our research has revealed that IFAs missed out on rallying global equity markets last year as they opted for safe havens. Despite Central Banks keeping a firm grip on interest rates, fixed income benefitted from these portfolio shifts, particularly investment grade corporate credit."
Outlook complicated by Coronavirus outbreak
The outcome of the UK general election saw IFAs consider moving back towards UK stocks. The analysis suggests the direction of UK equity flows shifted significantly around November and continued in the same direction at the beginning of 2020.
Source: Natixis Portfolio Clarity, Morningstar Direct, Monthly Fund Flow Data Investment Association (IA).
However, the emergence of Coronavirus have had implicatoins across corporate earnings, bond yields and global economic growth.
Beaumont added: "The coronavirus has knocked the momentum out of the positive market sentiment that started in Q4 2019 and carried into January 2020. The dramatic volatility at the end of February and beginning of March has caused clients to completely re-evaluate their portfolios to adequately shelter themselves from downside risk."
"Market uncertainty is far from over and may even intensify over the coming months as the virus spreads. As ever, we urge investors to maintain calm in periods of market volatility and remember the virtues of a more long-term investment approach with a diversified portfolio. Those portfolios are more likely to help protect investors' hard-earned savings against material market shocks, and even be well placed to evaluate some much more attractively priced investment opportunities for the rest of the year."