Model portfolios in the UK were the best performers globally in 2016, according to research by Natixis.
The Natixis’ Global Portfolio Barometer found that UK moderate and balanced model portfolios saw gains of 13.5 per cent in 2016, while US model portfolios saw returns of 8.2 per cent. Luxembourg was the worst-performing region with returns of 3 per cent.
The outperformance of UK portfolios can be attributed to the ‘significant’ non-sterling assets being boosted by currency depreciation following the Brexit vote, the Natixis report says. However, the UK and the US also had the riskiest portfolios the study found, with annualised risks of 6.5 per cent and 6.9 per cent respectively.
Unsurprisingly the best-performing equity index in 2016 was the FTSE 100, which was up 14.4 per cent, while the S&P 500 was up 9.5 per cent and the Euro Stoxx 50 was flat at 0.7 per cent.
“In 2016, home country equity bias paid off for UK and US advisers with UK advisers being the only group with significant exposure to the FTSE 100,” the report says.
“Currency moves in 2016 were the highest since 2008. This had a significant impact on UK portfolios investing in non-domestic equities. For example, a UK investor with unhedged US equity exposure would have gained an extra 19 per cent return in 2016 due to the depreciation of the pound versus the dollar. For Eurozone equities this would have been around 16 per cent, and for Japanese equities this would have been 23 per cent.”
The survey found that around half of the returns in UK adviser portfolios could be attributed to currency risk via non-UK exposures. However the firm warns that currency risk will not always play out successfully.
“While currency risk helped UK advisers in 2016, this will definitely not always be the case. Like any risk taken in portfolios, advisers should be able to quantify it and be sure that it is a risk that they want to take.”
Natixis’ data for the annual survey was canvassed from advisers and wealth managers in the UK, the US, France, Italy, Luxembourg, the Netherlands, Singapore, and Latin America.