US funds cut exposure to UK equities amid Brexit fears

US-based equity investors have pulled out of the UK at a faster pace than their British-based rivals in a sign that the threat of Brexit is driving a shift in ownership of the UK stock market.

Global US mutual funds cut their exposure to UK stocks in the first quarter of the year to the lowest level in four years, according to Morningstar. They reduced their holdings by 0.51 percentage points compared with the previous quarter, to 8.79 per cent. UK-based global mutual funds cut their exposure to UK stocks by 0.33 percentage points to 11.84 per cent in the same quarter. Their exposure is still higher than a year ago.

Some UK fund managers have accused their US rivals of creating market volatility by trading too frequently, and not sufficiently engaging in big decisions such as on executive remuneration.“There is a more short-term culture in the US,” says Matthew Beesley, head of global equities at UK-based investment manager Henderson Global Investors. “This short-term approach hasn’t been helped by Brexit.”

The behaviour of US mutual funds matters, as the US owns about a quarter of the UK stock market, more than any other country with the exception of Britain itself, which holds 46 per cent. American ownership has risen sharply since the early 1990s, when it was about 5 per cent, according to the Office for National Statistics.

US companies, such as the world’s biggest investment group BlackRock and Vanguard, which is primarily a passive investment group, dominate the shareholder lists of the FTSE 100’s biggest companies, including Royal Dutch Shell, HSBC, GlaxoSmithKline and British American Tobacco.

– (Copyright The Financial Times Limited 2016)