Citywire Wealth Manager asks...
'How much UK exposure do you currently hold in client portfolios?'
Ammalan Annalingam, Co-Head of Multi-Asset Investments responds...
The UK is a relatively small component of the global economy representing 5% of the MSCI All Country index. As global investors, our deviation from this is a relatively small absolute number. Currently we're marginally underweight, but this is as much a view on sterling strength as it is on UK equity as the FTSE 100 displays negative correlation to sterling.
While predicting Brexit is a somewhat impossible task, there is no doubt that sterling is weak by historical standards. Whether one looks at the number of standard deviations from the mean or sterling's purchasing power parity, by any medium to long term measure, sterling is undervalued.
Given the much smaller proportion of overseas derived revenue, domestic UK equity does not exhibit the same negative correlation to sterling as the larger cap names. While there is a hefty Brexit related risk premia associated with domestic UK equity, this is rational given the current situation.
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