Investors raise Brexit as a concern around 60 per cent of the time during conversations with their advisers, according to the latest Schroders Adviser Survey.
In its fifth annual survey, the asset manager asked 135 advisers what concerns were being raised most frequently by their clients with Brexit head and shoulders above the rest.
The top-five concerns were rounded out by included geopolitics, low interest rates, an equity market correction and a global recession, as the below chart shows.
Source: Schroders
Market liquidity – which has been a major buzzword in recent months after the issues faced by Neil Woodford – was actually one of the lesser concerns for investors, only beaten to the bottom spot by deflation at three per cent.
“Brexit is obviously the main concern,” said Philip Middleton, Schroders head of UK intermediary. “As we saw in the 2018 survey, the uncertainty of Brexit remains a prevailing concern for investors. However, this year’s data gives us reason to be cautiously optimistic on the outlook for the UK.”
Middleton said that ESG (environmental, social & governance) issues were also raised by investors in their conversations with advisers.
“What’s interesting is ESG concerns are prominent and climate change is raised quite a bit,” he said. “Obviously, it’s on the news every day and it’s something that’s being discussed more and advisers see that it’s becoming more important.”
Concerns over Brexit have been ongoing and longstanding in the UK market and have been reflected in the survey’s results.
The survey found that 40 per cent of investors have moved money out of UK equities and 49 per cent had reduced their overall exposure to risk because of Brexit.
Asset allocation changes over the past year
Source: Schroders
US equities have been the largest beneficiaries with 74 per cent of advised clients increasing their allocations into what has been “the strongest performing equity market since the Brexit vote”, although it follows the pattern of last year’s survey, said Middleton.
Other areas that saw increased allocations included Asia ex Japan (40 per cent), emerging markets (35 per cent) and Europe (22 per cent).
However, UK equities is the area where advisers most expect to increase allocations during the next 12 months. The survey showed that 41 per cent foresee UK equity exposure increasing during the next year, after years of international investors shunning the market.
Elsewhere, advisers anticipate that allocations to emerging markets (34 per cent), alternatives (32 per cent) and developed international equities (30 per cent) will increase.
Asset allocation expectation for the next 12 months
Source: Schroders
Middleton added that if a Brexit resolution does occur then he would expect to see an even greater increase in allocation to UK equities.
Middleton added: “Equities comes up a lot in asset allocation and in a way it’s the same story as last year in that people were reducing their UK equities ahead of the Brexit decision.
“What’s happened now is that they were getting rid of UK exposure and now really starting to think about increasing it as the year has gone on because they were decreasing last year and [are] now thinking about increasing.”
Meanwhile, advisers anticipate pulling more money out of government and corporate bonds against a backdrop of negative rates and worrying corporate debt levels, with 23 per cent and 20 per cent likely to decrease allocations in the next 12 months.
Having reduced exposure to risk assets this year, cash allocations are also likely to decrease over the next 12 months as central banks have once again stepped in to reassure markets.