After a sustained period of negativity, investors and global fund managers are becoming increasingly confident on the outlook for UK equities.
According to the latest BofA Merrill Lynch Survey, global fund managers in May increased their exposure to the UK to a net 2% overweight, which is the highest level since March 2014.
Meanwhile the latest Investor Confidence Index from investment platform Hargreaves Lansdown (HL) revealed that positive expectations of the UK hit a record high in May, rising 4% since last month and 51% year-on-year.
“The acceleration of vaccine programmes, and the fact the country has kept to the road map of re-opening appear to have helped boost confidence further to another record high this year,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
“The Bank of England’s revision of growth prospects for the economy is also likely to have lifted spirits, despite the spectre of the rise in inflation,” she added. “Forecasts that the sharp rise in prices won’t be sustained over the longer term is likely to calm immediate jitters.”
Heralded return
Breaking this down into investment, in terms of shares, Streeter said those UK companies whose fortunes are intertwined with the easing of restrictions were among the most sought after – with British Airways owner IAG and aircraft engine manufacturer Rolls Royce in the top 10 list of its most popular shares.
“Cineworld, which saw its share price fall dramatically as cinemas were mothballed, has been a key target for investors,” she said. “Many are clearly hoping the re-opening will herald a cinema renaissance, but recovering from the shock of covid won’t be easy, especially with high level of debt the company has had to take on.”
In terms of underlying funds, Streeter said Hargreaves Lansdown investors continue to show an appetite for UK smaller companies, with the Marlborough UK Micro-Cap Growth and Nano-Cap Growth funds sitting in the top 10 most popular offerings purchased on its platform.
“Many smaller companies are pioneers in emerging industries and will flourish longer term, while others may struggle so overall they are considered higher risk,” she added. “The HSBC FTSE 250 tracker also emerged as a favourite again in May, demonstrating investors’ growing appetite for UK focused stocks, amid hopes of a big British bounce back.’’
Friendly neighbours
In addition to raising their exposure to the UK, global fund managers also became more positive on Europe in May, upping their net overweight position to 35%, the highest level since March 2018.
This confidence was also reflected by individual investors, with the HL Investor Confidence Index showing a 28% rise in confidence compared with April.
“‘The catch up game being played across Europe when it comes to the roll-out of vaccines appears to have boosted investor confidence in the region by more than a quarter,” said Streeter.
She added: “Investors had appeared pessimistic last month about the prospects for European assets, given ongoing lockdowns and concerns about the trajectory of the virus. However confidence has risen by 28% compared to April’s levels as the prospects for full economic re-opening have inched closer.”
