Key facts
- UK funds have lost £40 billion in assets under management since the Brexit vote in May 2016.
- Global funds have seen their assets under management increase to around £176 billion.
- Global funds have outperformed UK funds over the past decade.
- The US 'Magnificent Seven' companies have been a key driver of returns for top-performing global funds.
- Initial market panic following the Brexit vote was short-lived, with major indices recovering quickly.
A decade after the United Kingdom's vote to leave the European Union, the asset management sector has seen a significant shift in investor preferences, with a notable decline in UK fund management and a surge in global fund investments.
Figures from the Investment Association (IA) indicate that since May 2016, the month preceding the Brexit referendum, assets under management for UK funds have shrunk by £40 billion. In stark contrast, global funds have experienced substantial inflows, with their assets under management rising to approximately £176 billion.
Initially, the uncertainty surrounding Brexit prompted some investors to reduce their exposure to the UK and seek opportunities abroad. The unexpected Leave vote caused considerable volatility in UK markets, with the FTSE 100 index falling 4.5% and mid and small-cap indices declining over 10% by June 27, 2016. The pound also experienced a significant slump against the dollar. However, market sentiment quickly recovered, with the FTSE 100 surpassing pre-vote levels by mid-July, largely due to the benefit international-facing blue-chip companies received from the weaker pound.
Beyond Brexit, other factors have contributed to dampened investor sentiment towards the UK over the past decade, including political instability, the COVID-19 pandemic, the war in Ukraine, and Middle East tensions. These combined factors have led many investors to favor international markets.
For those who shifted their investments overseas, the move proved financially astute, as global funds have, on average, significantly outperformed UK funds over the last ten years. The sector returns table illustrates this trend, with Global funds showing a 10-year return of 190.8%, compared to UK All Companies at 99.2% and UK Smaller Companies at 82.1%.
A primary driver of returns for top-performing global funds has been the exceptional performance of US technology companies, particularly the 'Magnificent Seven': Amazon, Alphabet, Nvidia, Microsoft, Meta, Apple, and Tesla. For instance, the top-performing global fund, GAM Star Disruptive Growth, holds substantial weightings in Amazon, Nvidia, and Microsoft. Similarly, the L&G Global 100 Index I Acc tracker fund has benefited from its significant exposure to these US tech giants.
Despite the dominance of US tech stocks, some active funds, such as Artemis Global Income, have delivered strong returns by being notably underweight in the US market. Jacob de Tusch-Lec, manager of Artemis Global Income, explained that as a value fund, he finds numerous opportunities outside the US, noting that value stocks in Europe and emerging markets have outperformed growth stocks in recent years.