Global equity ITs shun UK for emerging markets

Global equity investment trusts are reducing their allocations to the UK market in favour of emerging markets and specialist sectors such as private equity, AIC data shows.

The average manager in the IMA Global Growth sector has slashed UK exposure by 10% over five years, from 42% to 32%, according to the AIC.

While the UK still accounts for the majority of assets, some managers have gone further and are not underweight the UK. Exposure to Japan has also halved, while North America and the Pacific region have benefitted from the rotation.

The £73m Cayenne Trust sits in the Global Growth sector and can also invest in other trusts in the peer group.

Co-manager James Hart has reduced its UK equity exposure from 71% to 29% and shifted assets into the private equity sector.

Other big hitters in the peer group have also mirrored the move into more specialist areas, with the £2.7bn Alliance trust reducing UK holdings from 52% to 34% in favour of emerging markets. Meanwhile the £2.3bn Scottish Mortgage trust has seen its UK exposure fall from 35% to 10%, while tech exposure has risen to 20%.

Hart said despite trusts reshaping their asset allocation, he sees little value in the Global Growth sector.

He has moved away from global investment trusts, adding to unloved specialist areas such as private equity where he sees better value.

“The Global Growth sector is too expensive at present due to the insatiable demand for yield driving prices up,” said Hart.

“We prefer areas which are out of favour and have heavily added to private equity and real estate investment trusts.

“UK-focused investment trusts are expensive and are having to change their mandates to compete with the ever increasing number of overseas investment trusts in the market,” he added.

However, the £1.2bn Caledonia investment trust is bucking the trend as the manager has no plans to reduce its 58% UK exposure.

Will Wyatt, who heads up the trust, said on a bottom-up view there are plenty of value opportunities in UK companies. The trust saw a 6.4% increase in NAV per share compared to the 5.4% increase from the index.

“We will be sticking by our UK exposure as we build up large stakes in quoted and unquoted UK companies, on average owning 15% of a company as this allows us to secure seats on the boards and become partners in the businesses,” said Wyatt.

“You do not have the flexibility to do this outside of the UK. There is a lot of value in UK companies and groups such as AG Barr and Cobepa will continue to post strong profits.”