17th Mar 2025 13:43
(Alliance News) - UK investors are increasing exposure to domestic equities at the expense of their US counterparts amid growing political and economic uncertainty, a report on Monday showed.
The strategic shifts in portfolio allocations are in response to evolving macroeconomic and geopolitical factors, according to the inaugural Portfolio Panorama report from Janus Henderson’s Portfolio Construction & Strategy team.
The report shows that UK investors are increasing exposure to small-cap equities while maintaining strong allocations to high-quality fixed income.
This reflects a balance between seeking new growth opportunities and preserving stability in an uncertain macroeconomic environment driven by geopolitical realignment, tariff threats, and diverging central bank policies.
Meanwhile, developments in artificial intelligence are adding uncertainty, prompting investors to reassess their portfolios and look for the next big growth areas.
The report analysed trends across 1,229 UK portfolios from March 2024 to February 2025.
It focused on aggregated data from UK portfolios over two distinct six-month intervals: the 'Previous Period' [March to August 2024] and the 'Current Period' [September 2024 to February 2025].
In equities, the report showed a strong "home bias" as UK investors remain significantly overweight versus global equities.
UK investors have reduced their exposure to US stocks while keeping European allocations steady.
Technology continues to lead sector preferences, followed by financials and industrials.
While large-cap stocks still represent the majority of equity holdings, their share has dipped from 70% to 68% with allocations to small and and mid-cap stocks increasing.
Small-cap exposure rose from 8% to 9%, while mid-caps increased from 22% to 23%.
In fixed income, a backdrop of stickier inflation, uncertainty around Trump policies, the Autumn budget, and lower UK growth expectations, saw investors keep their allocation in defensive strategies with a focus on high-quality fixed income.
However, a small increase in average UK portfolio duration, from 3.2 to 3.3 years, indicates growing confidence that inflationary pressures will continue to recede, the report said.
Within fixed income, investors maintained a strong focus on defensive assets, with allocations to government and corporate bonds remaining steady at 39% and 31% each. This reflects a preference for stability amid ongoing macroeconomic uncertainty, as investors position themselves for potential central bank rate cuts.
UK investors scaled back allocations to liquid alternatives with the average portfolio allocation to passive or index funds experiencing a slight dip from 44% to 43% over the two periods.
Exposure to long-short equity strategies more than halved, reflecting an increasing appetite for risk, as investors position themselves for continued market strength.
Head of Portfolio Construction and Strategy, EMEA & APAC, at Janus Henderson Matthew Bullock, said the findings highlight the careful approach UK investors are taking in today’s market environment.
"The increased focus on small-cap equities suggests a search for new growth opportunities, while strong allocations to fixed income reflect a continued emphasis on stability," he added.
By Jeremy Cutler, Alliance News reporter
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