The amount allocated to UK equities by UK investment managers fell to a record low of 20 per cent in 2023, as the US continued to dominate new money coming into the market.
The amount allocated to UK equities over the last 10 years has now dropped by a third, new data from the Investment Association revealed.
This compares to 35 per cent allocated to the US (almost double where it was a decade ago), and 19 per cent to Europe (ex UK).
Domestic allocation has been dropping substantially for some time, with the figure being closer to 50 per cent 20 years ago, due to asset manager desire to diversify their investments internationally.
The outperformance of the US market in recent years has also been a key factor.
“I don’t think we’ll ever return to a period where the UK is dominant,” Miranda Seath, director of market insight and fund sectors at the Investment Association, said.
However, falling into third behind Europe on investment is unlikely to happen, said Seath.
“I certainly think there are the ingredients for us to see that percentage allocated to the UK to rise,” she argued, thanks to slowly improving performance of the UK market and expected cuts to interest rates.
In addition, a new Labour government that “wants to pursue growth and cares about fiscal responsibility” is also “quite attractive to asset allocators”, Seath said.
In contrast, political instability and the rise of the far-right in Europe, which has little regard to fiscal rules, may drive investors in British arms.
Total assets under management in the UK rose to £9.1 trillion in 2023, up three per cent from last year, but still not recovered from 2022’s 12 per cent drop.
Meanwhile, a significant shift in the Investment Association’s data has been the rise of retail investors: 26.4 per cent of all assets in the UK are held by retail investors, up from 20 per cent in 2020.
Seath explained that this was due to retail investors having plenty of disposable income and time to start learning about the stock market.