Financial advisers in the UK are acting on the anticipated slowdown in British and European markets, while betting that adverse conditions in the USA will not persist. This scenario reveals itself in the latest options selected by a group of leading IFA panellists, which feed into the composition of Financial Express’s Adviser Fund Index - a set of aggregated indices that reflect which funds advisers are recommending to their clients. In effect, there is a marked drop in exposure to the UK and Europe, and an increase in uptake of North American equities.
The possible reasons for this are manifold, but the underlying view must be that the worst of the economic news in the US is now all but shaken out, and has left some very attractive valuations in its wake. Further, while the US cycle runs ahead of – and arguably drives – other western economies by 6-12 months, some pain has yet to be felt in the UK and Europe.
There are factors to support this view: the Federal Reserve Bank has shown itself ready to act aggressively in cutting interest rates, and injecting liquidity into capital-starved markets. The market participants themselves have acted with impressive nimbleness, most notably in the Bear, Sterns rescue, and there is little sign that the exchanges are descending into a disorderly free-for-all.
The fall in US house prices, and sub-prime evictions, will inevitably have some effect on consumer-reliant sectors, but a $110bn package of personal tax returns is now reaching its recipients, and it is estimated that around $45-55bn of this will find its way back into the economy in the form of consumer spending. And, with the US dollar trading at sharply reduced levels against other major currencies, the country’s export businesses are buoyant. It could be time to take another look at this region.