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A third of advisers think London shares will provide ‘best’ medium-term return
Thursday 18 May 2017 Author: Tom Sieber

A new report from pension, insurance and investment firm Aegon UK shows a third of financial advisers believe UK shares will generate the ‘best return’ for clients on a three to five-year view.

At the same time, data from investment bank Morgan Stanley shows 64% of UK companies posted first quarter earnings ahead of consensus expectations, providing some support for this confidence in the prospects for UK plc.

Record highs

The UK stock market continues to perform strongly with the FTSE 100 trading at a new record above 7,500 at the time of writing. The mid cap FTSE 250 index also hit its best ever level earlier in May.

Financial adviser opinion is somewhat split with some eyeing these all-time highs nervously; 16% of respondents in the Aegon research think UK stocks are the most overvalued asset class.

Four months into Donald Trump’s turbulent presidency, UK financial advisers have also signalled a move away from US equities, which have outperformed most other equity markets since 2009.

Nearly two in five (38%) of financial advisers think US equities are the most overvalued asset class.

The S&P 500 is a hair’s breadth away from its highest point despite ongoing scandals relating to the Trump administration.

Interestingly Morgan Stanley’s analysis of the reaction to better-than-expected first quarter results globally shows ‘misses have generally been punished more than beats have outperformed’ suggesting ‘a reasonable degree of earnings optimism is already in the price’.

Victim of their own success

Aegon’s investment director Nick Dixon comments: ‘Developed markets like the US have outpaced other equities in recent years and now appear to be a victim of their own success with financial advisers turning to alternatives that offer the potential for better returns.

‘While advisers are pointing towards long-term value in UK equities, the split in their opinions is reflective of continued uncertainty about the longer-term impact of Brexit.

‘A rise in inflation and stunted wage growth signal a warning for financial advisers and demand a higher margin of safety as the volatility of the pound and political strain continue to pose a risk.’

Dixon says Aegon itself favours the UK and Europe over the US but is taking a more cautious approach and has increased the weighting of cash in its portfolios. (TS)

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