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Sinking sterling drags UK equity allocations to record low


The weakening pound and deteriorating investor confidence are driving Britain’s share of international investment funds to new lows with the UK’s portion of global equity funds dropping to 7.87 per cent, surpassing lows immediately after the Brexit referendum in 2016, according to a survey of 250 international funds with USD450 billion in total assets under management conducted by Copley Fund Research. 

Britain’s slice of global funds has fallen from a peak of 11.5 per cent in 2011, when Copley started the survey.
 
While London attracts a bigger share of international funds than any other European exchange, allocations have been increasing to Switzerland, Germany and the Netherlands, with Dutch holdings hitting a record high, according to the data as of July 31.

“We’re seeing a marked shift out of Britain and into mainland Europe by international fund managers,” says Steven Holden, CEO of Copley Fund Research in Auckland, New Zealand. “The weakening pound is certainly the major contributor to the decline in UK stock allocations but it reflects caution over Brexit from an equity perspective too.”

Among the hardest hit by the shift out of UK equities are financial stocks, such as HSBC Holdings and Barclays, along with telecoms giant Vodafone. Faring better are consumer staples businesses that tend to outperform in a recession, particularly those with a good proportion of customers outside of the UK, including Unilever, Diageo and Reckitt Benckiser Group.
 
By contrast, in the Netherlands, allocations have increased across the board, with the biggest flows going to Heineken, ASML and NXP Semiconductors.

“Rather than investing in UK domestic stocks, investors are choosing high quality, well-run global companies that are listed in the UK, but receive most of their earnings outside of Britain,” says Holden. “These companies have the added advantage of benefiting from the falling pound in the run-up to Brexit.”

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