UK Investment Outlook: Growing Optimism and Shifting Risk Appetite in 2024

By: Kieran Vaughan

02/10/2024

In our previous analysis of the UK investment landscape, we highlighted the growing optimism within the advisory sector. It’s now evident that this confidence has not only persisted but continues to strengthen.

Our latest findings, based on our quarterly UK Advisory Study (UKAS) conducted between April and June 2024 with 117 discretionary fund managers (DFMs) and 167 investment advisers (IAs), confirm that this positive sentiment remains firmly in place.

On average, with the current economic climate, have you noticed a change in your clients’ attitude to risk? Base: DFMs n=117, IAs n=163

Last quarter, for the first time in over two years, both DFMs and IAs felt that clients were willing to take on more risk. This quarter, the trend has persisted, with risk appetite continuing to increase. DFMs particularly note the highest level of risk appetite since this question was asked in Q4 2014.

Biggest investment opportunities

In this environment of increased optimism and opportunity, where do DFMs and IAs see the most significant investment prospects? DFMs have pointed to investment trusts, equity, and technology as the areas of most opportunity, while IAs have identified equity, technology, and multi-asset as the sectors of most promise.

All: Which of the following sectors do you feel currently offer the biggest investment opportunities? Please select all that apply Base DFMs n=117, IAs n=167

As seen above, and covered in one of our recent articles, there is a growing sense of value in investment trusts, with DFMs attracted by the discounts available. Both DFMs and IAs are in agreement, citing equity and technology as promising investment opportunities. In terms of equities, there are various regions, notably the UK, where valuations are seen as attractive with certain markets being seen as undervalued. A couple of DFMs state:

“Looking at the UK again, actually, because again valuation wise looks pretty attractive. And then Asia, emerging markets as well. So those would be the main ones within the equity bucket.”

“The UK is cheap compared to other markets, compared to its long-term historical averages. Global smaller companies are cheap. Emerging markets, cheap. Those sectors will benefit as, when the economic conditions improve, rates start to fall.”

Changing sentiment towards fixed income

One significant shift in the investment landscape has been the declining sentiment towards fixed income as a big investment opportunity.

All: Which of the following sectors do you feel currently offer the biggest investment opportunities? Please select all that apply Base DFMs n=117, IAs n=167

At its peak in Q4 2023, 44% of DFMs and 30% of IAs saw fixed income as the biggest investment opportunity. This has dropped back substantially, with only 15% of DFMs and 8% of IAs now stating this. This decline is largely the result of the potential returns offered by equity markets outshining the projected returns in the fixed income market. As one IA comments:

“The desire for fixed income is starting to wane. I think the value is in the equity markets at the moment.”

2024 has marked a significant shift towards a sense of optimism, following the more cautious outlooks seen in 2022 and 2023. DFMs and IAs feel there are greater opportunities for returns for themselves and their clients. As the UK investment landscape continues to evolve, we will continue to closely monitor the advisory sector to track whether this positive outlook endures or adjusts in response to market conditions.

How Research in Finance can help

Now in its tenth year, UKAS is a quarterly research study that gives a comprehensive analysis of the competitive UK retail landscape. It gives insight into current investment appetite of the most influential intermediaries and their clients, plus expectations going forward.

We also offer bespoke studies. For more information, please get in touch with Mick Hrabe or Richard Ley. You can also call us on +44 (20) 7104 2235.