What is keeping professional investors awake at night?

Even though Brexit looms over the markets, could the UK appeal to professional investors?

Article updated: 1 November 2018 12:00pm Author: Alice Rigby

What is keeping professional investors awake at night?

Earlier this month, Kepler Trust Intelligence gathered together 70 private client wealth managers for our annual conference ‐ led by presentations by Invesco's Mark Barnett, Henderson's Tim Stevenson, Aberdeen Standard's Will Fulton and more ‐ and asked these delegates how they were planning to allocate their clients’ capital in the coming months.

Given that our conference fell on the day of the most significant market correction for some months, our respondents remained relatively buoyant. On a sliding scale from bullish to bearish, the majority sat firmly in the middle and their allocation plans suggested a quiet confidence in the markets.

Where in the world

Almost half of the respondents said they were considering upping their allocation to emerging markets, which have been through something of a drubbing so far in 2018, pushing many of the trusts in the sector to deeper discounts. However, we argued last week that the emerging markets have been unfairly maligned on the basis of short‐term news – in step with the DFMs in question.

Perhaps more surprisingly, very few of those surveyed were planning to allocate more to defensive areas of the market such as government and corporate bonds. This comes in spite of bearish market speculators arguing that this month’s correction marks the starting off point of a long‐anticipated reversion of prices.

Instead, racier alternative assets attracted a smattering of interest, suggesting that as valuations remain at heightened levels professional investors are seeking capital growth elsewhere.

However, most surprising of all was that the second‐most cited equity market in which investors were considering increasing allocations was the UK. This is in spite of the UK’s economy having struggled since the Brexit referendum and little clarity having emerged on the eventual terms of the UK’s deal with the EU – with a possible extension of the transitionary period being mooted.

Growing concern

Indeed, five of our respondents cited UK politics (in terms of either Brexit or a Jeremy Corbyn‐led government) as their biggest investment concern. Yet, three of those still said they were considering upping their UK allocation.

Other worries also captured our audience’s attention. The US/China/Europe trade war remains a key concern for a couple. Elsewhere though, it was signals that the current bull run is coming to an end – everything from rising defaults, a material correction in bond markets, to plain old length of the bull market – that were causing real worry.

Overall, what our survey showed more than anything is that professional investors are as conflicted as the rest of us. True, this bull run is of a record‐breaking vintage – and yet, it is hard as an investor to contemplate missing out on some return in exchange for safety. After all, a reversion has been discussed by some since 2015, at which point investors who moved into ‘safe’ allocations would have missed out on three years of growth.

As ever, this reminds us of the value of investing for the long term, an approach of which, as Kepler has discussed before, the investment trust structure is particularly supportive.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Alice Rigby

Marketing Manager, Kepler Partners

Alice manages the production and distribution of content at Kepler Trust Intelligence, an online research hub for professional and private investors. She was previously a financial journalist at Investment Week and an investment writer at Hermes Investment Management.

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