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Every month, Bank of America Merrill Lynch takes a poll of global investors to get their views on what’s going on in the world.
Right now, global investors are keen on banks, cash, and emerging markets – in that order (interesting combination, I’m sure you’ll agree).
They hate the healthcare sector and bonds in general are the third and second-most-hated assets.
But way out in front in terms of fear and loathing is the one stockmarket that global investors truly detest: our very own UK market.
Here’s why fund managers hate the UK – it’s convenient to do so
According to Bank of America Merrill Lynch, the UK is more hated than it’s ever been in the history of the company’s monthly global fund manager survey. That comprises nearly 20 years of data now (it started in 1999), so it’s quite a significant moment.
Why do fund managers have it in for the UK at the moment? We could go on about all the political stuff, or productivity, or the strange mix of sectors in the UK market. But the most likely answer is that it’s because at the moment, it’s convenient and low-risk to take that position.
Think about it. If you’re a global fund manager, you have the pick of global markets. If you can easily strike one out of the running and thus lighten your workload, you’re going to do it.
To do that, you only need an excuse that makes your stance easy to justify. And there are two very obvious “big picture” reasons to dislike the UK as an investment right now, reasons that anyone can wrap their head around.
One is Brexit. I happen to think that Brexit is largely a political story and not one that will have a huge effect on the economy overall. But it is a source of uncertainty, and it’s a very easy and obvious factor to point to if you’re trying to make a case for avoiding the UK.
The other is the prospect of a Jeremy Corbyn-led government. I suspect that this is having more impact than Brexit. Corbyn and his shadow chancellor, John McDonnell, have made a lot of noises about nationalisation and higher taxes. More generally, they’ve given a sense that business is not welcome and that property rights are not necessarily something to be respected.
Those are two glaring, obvious reasons not to invest in the UK. They make it very easy to justify such a stance to your investors.
It’s nice to be seen as a contrarian, but being one is a different matter
“But surely”, you’re thinking, “this level of loathing must flag up an opportunity to some particularly enterprising managers?” Not necessarily. You have to remember the power of “career risk”.
Most fund managers like to strike a bit of a contrarian pose. But they’re not really contrarians. Most of them find a consensus position and then try to paint it as somehow being contrarian, when it’s not. That’s because they know that being contrarian looks good, but acting on it is an incredibly high risk, potentially career-limiting strategy.
The incentives are entirely skewed. If you are “overweight” (as the jargon has it) the UK right now in your global fund, then you are going against the received wisdom of your peers and most opinion formers.
If you are right, then your fund might outperform, but no one is going to give you a medal. Your outperformance alone is but one small contributing factor in your organisation’s quest to gather more assets.
Moreover, while you will have proved your peers wrong, their reaction will be that, given the facts on the ground, only a gambler or a pathological risk junkie would have taken the bet that you did. You just got lucky.
If you are wrong, of course, then everyone gets to call you an idiot and your career prospects may be in jeopardy. When you challenge the consensus, the consensus will revel in your failure and dismiss your success – that’s the wonder of confirmation bias. It’s an evolutionary adaptation designed to reinforce social cohesion by rewarding conformity and punishing dissent.
In short, it’s one of those wonderful “Teflon” positions – career-wise, you can’t go wrong. Just as no one will get fired for owning Amazon shares, so no one will get fired for avoiding the UK.
You don’t have to worry about being fired over your portfolio
This is the one area where individual investors have a huge advantage over institutional investors. You don’t have to worry about career risk, and you don’t have to worry about anyone telling you you’re an idiot when they look at your portfolio.
Of course, the mere fact that the UK is loathed by professional investors doesn’t mean that it’s chock full of bargains, or that you should stick all your money into a FTSE 100 tracker.
Like it or not, there are a lot of value traps in the UK – particularly in stocks that feel beholden to paying dividends that they can’t really afford to maintain for the long run.
But when you have a market that’s this detested, I can’t help but think that there must be some good value in there somewhere. We’ll be looking at where it might lurk in MoneyWeek magazine in the very near future. If you’re not already a subscriber, sign up now.