Wealth managers hold their nerve in European equities

Europe mapUK wealth managers and financial advisers ignored warnings of a European equity sell-off due to recent problems in Greece and stuck with the asset class, which went on to outperform other major markets.

Aggressively managed portfolios increased their European equity allocations to an average of 7.5% in the second quarter (Q2) of this year, up from 4.4% in the previous quarter.

Even in moderately and conservatively managed portfolios, changes to European equity holdings were minimal.

James Beaumont, head of the portfolio research & consulting group at Natixis Global Asset Management, notes that European equity markets have outperformed both their UK and US peers to date.

“In a properly diversified portfolio, even if the worst were to happen in Greece – [which is] still a very real possibility down the road – adverse market changes would only be painful in isolation and not do too much damage to the wider portfolio.”

Natixis regularly carries out market research into model portfolios categorised as aggressive, moderate and conservative.  

The outlook for UK equity funds was also more positive in Q2. Despite substantial sell-offs in Q1, allocations to UK equity funds began to recover, with all three portfolio groups increasing their average exposure to UK equity funds.

In contrast, cuts to global equity holdings were made across the board, ranging from a decrease of 1.8% in conservative portfolios to 5.5% in aggressive portfolios.

An ongoing trend in the model portfolios was the use of multi-asset allocation funds. However, the research found that these funds often replicate parent portfolios, both in performance and correlation.

Matthew Riley, head of research, portfolio research & consulting group, says: “Often, these funds add little to the overall portfolio other than extra fees; their diversification and performance benefits were rarely apparent. There are examples of excellent multi-asset funds both in terms of diversification and performance, but advisers will have to look hard to find them.”

The Natixis Global Asset Management research studied 103 risk-rated model portfolios managed by 39 UK financial advisers and wealth management firms in the three months from April to June of 2015.

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