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Post-Brexit Sterling Slide Boosted UK Portfolios - Natixis Global Asset Management Data

Josh O'Neill Assistant Editor 6 February 2017

Post-Brexit Sterling Slide Boosted UK Portfolios - Natixis Global Asset Management Data

The Paris-headquartered firm's latest report found that certain UK portfolios "significantly benefitted" from the plummeting pound in 2016.

UK portfolios with significant non-sterling assets were boosted by a currency depression that followed the UK's vote to leave the European Union last summer, with average performance exceeding 13 per cent in 2016, according to new data from Natixis Global Asset Management (NGAM). 

NGAM's Global Portfolio Barometer offers insights into model portfolios and asset allocation decisions across the world. It is based on a review of 564 “moderate risk” or “balanced” model portfolios between July and December of 2016.

The firm's findings showed that UK portfolios outperformed US equivalents, which came second, boasting average returns of around 8.2 per cent. 

According to NGAM, the variation in 2016 returns can be explained by the difference in return contributions from exposure to equities. In the UK, equity performance contributions were 11 per cent out of the total 13.5 per cent, and of that, 9 per cent was overseas equity. In comparison, equities were just 0.8 per cent out of the 3 per cent average returns in Luxembourg. Strong equity markets also propelled performance in the US and the Netherlands, NGAM said. 

Excluding the UK, returns from equities were found to be in the 5-8 per cent region, with fixed income in the 4-5 per cent range and allocation funds 3-5 per cent. 

The most significant difference in asset class returns was from alternative strategies, which ranged from -2.1 per cent for Luxumbourg-based advisors to 3.9 per cent in the UK. Although the returns were relatively modest, they underline advisors' tendency to allocate to low-risk, low-return alternative strategies as a replacement for fixed income, NGAM said. 

The FTSE 100 was the best performing major equity index last year, up 14.4 per cent. The S&P 500 also performed well, up 9.5 per cent, while the Euro Stoxx 50 was flat with a performance of just 0.7 per cent.

“A substantial part of the explanation is currency risk which is no surprise since currency moves in 2016 were the highest since 2008 and had a large impact on the surveyed portfolios,” said Matthew Riley, head of research within NGAM's portfolio research and consulting group.

He continued: “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. Currency impact was also seen in allocation funds, emerging markets debt and high-yield debt funds, which are often not hedged by advisors.” 

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