Into our inbox recently popped some research from Morningstar which demonstrated that multi-asset funds have been increasing their equity exposure to the US, and at the expense of the UK.

On the face of it, this isn’t a huge surprise but the chart below shows the extent of the change.

The typical 40-60 per cent fund has around half the equity allocation in the US, double the level it was in 2017.

Meanwhile the UK equity exposure has dropped from 47 per cent to 20 per cent.

Of course its worth pointing out the US equity market is around 70 per cent of the global index, so having half your equity exposure there is arguably below market weight. 

Certainly in our own Asset Allocator databases it’s a pattern the largest wealth managers are embracing, with the average balanced fund now having 12 per cent in UK equity funds compared with 17 per cent in the US.

The direction of travel is clear: four years ago, both average allocations were 14 per cent. 

Of course some of the reason for the change will be the much stronger performance of US equities relative to those of the UK dragging the US higher.

But Ben Yearsley, consultant at Fairview, said other factors were also at play.

He said: “What is happening isn’t just a short-term trend, I think these are strategic asset allocation decisions, based on people’s views of the quality of US companies, and the pro-business culture of the US over the longer-term. I don’t see it reversing.” 

Premier Miton’s David Jane said: “Our focus, being on liquid stocks that meet our macro and thematic idea generation criteria, doesn’t tend to throw up many UK stocks.

“Firstly, the UK doesn’t haven’t any exposure to many of the big themes which drive markets these days. Think recently how AI has been the story, technology generally.

“The issue goes far wider than just technology, good growth companies don’t see the UK stock market as a good place to list.

“The other factor arguing against a higher UK weight is the poor liquidity in the UK market, compared to international markets. Much of this is driven by the above but the primary factor is most likely stamp duty, which makes trading UK stocks greatly more expensive.

“Additionally, this impacts the above, companies are not attracted to list in the UK.”

He said that while until recently he has been near the top of his range with his US exposure, he has trimmed this back a bit, to increase his European exposure.