US equities allocations surge in Q2

While overall equity allocations remained largely flat in Q2, accounting for 58.4% of balanced portfolios, investment in the US equities market increased by 1.7% compared to the previous quarter.

Harrington Cooper highlighted that the US stockmarket has benefitted from financial stimulus packages for households and businesses leading to a continued period of positive performance.

The firm’s proprietary asset allocation tracker shed light on asset allocation shifts by UK wholesale investors that took place during Q2 based on research covering 31 multi-manager funds following a balanced risk profile.

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Jonathan Francis, head of research at Harrington Cooper, said: “We have noticed a steady increase in allocations to US equities over the course of the past seven years by UK investors who have looked to ‘globalise’ their portfolios.

“US equity holdings have now doubled in size, from 6.5% in 2014 hitting 13% at the end of [the] last quarter.

“Growth-oriented funds have dominated the holdings over recent years, however we have seen a noticeable increase in alternative names popping up in portfolios this year as investors look to diversify away from the fully valued MFAANGs [FAANG + Microsoft).”

In Q2, Europe (ex-UK) equities allocations accounted for around 6.3% of portfolios, while UK equities fell by just over 1% over the same period.

“Despite this, UK equities remain popular, accounting for over 25% of equity allocations with valuations still attractive,” versus other markets, Harrington Cooper stated.

Elsewhere, Asia Pacific equity holdings dropped by 0.11% compared to Q1. This was predominantly driven by underperformance in the market highlights by the “significant” uncertainty present in the Chinese market following regulatory interventions.

Private equity investment trusts continued to fall out of favour and were down for the third consecutive quarter – at 0.7% on a relative basis to just over 4% of balanced portfolios.

Real estate positions were also at an all-time low. With many gated trusts reopening, investors appeared to be cautiously moving away from the asset class to avoid being stuck in a similar situation again, the report noted.

Meanwhile, cash allocations increased for the third consecutive quarter as a lack of opportunities in the bonds space saw investors seeking alternatives. In Q2, average cash exposure surged by 1% to 6.9%.

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On a relative basis, fixed income allocations remained largely unchanged and accounted for over 21.7% of assets within balanced portfolios.

Non-investment grade bonds and gilts saw the largest outflows for the quarter, with allocations falling by 12.5% and 25.5% respectively.

Investment grade bonds were back in favour, with allocations rising by 6.6% on a relative basis to over 13%. 

This marked a turnaround from Q1, when allocations fell by 17.5%.

Francis commented: “Within fixed income, investors have been quite active over the last year. With credit spreads having contracted so significantly since the wides witnessed in 2020, it is unsurprising to see non-investment grade exposure fall back to near all-time lows.”

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