Advisers on the FE fundinfo Adviser Fund Index (AFI) panel have added more UK equity strategies to their portfolios at the expense of embattled sectors such as property and absolute return, the latest rebalancing of the series has revealed.
There are three portfolios in the range: AFI Aggressive, comprising funds suitable for people up to their late 20s; AFI Balanced, with funds suitable for people up to their mid-40s; and AFI Cautious, made up of funds suitable for people up to their late 50s. Across all portfolios, there is an underlying assumption that the client will retire at 65.
Since the last rebalancing at 30 June 2019, the AFI Aggressive index was up by 4.19 per cent, while the Balanced and Cautious portfolios rose by 3.37 per cent and 3.09 per cent, respectively.
Performance of indices in H2 2019
Source: FE Analytics
In the latest rebalancing, six AFI panellists removed 10 funds from the IA UK Direct Property sector from across the three portfolios.
Oliver Clarke-Williams, portfolio manager at FE Investments, said the move followed the suspension of M&G Property Portfolio, which suffered from outflows amid ongoing concerns over liquidity.
He also noted the FCA’s investigation into the suitability of the open-ended fund structure for the asset class.
“Some wealth managers have evidently seen more trouble ahead for the sector,” he said.
Funds exiting the indices include: Threadneedle UK Property Authorised Investment, L&G Property Feeder, and M&G Property Portfolio, which remains suspended.
Elsewhere, six funds from the IA Targeted Absolute Return sector were also cut by panellists, as the strategies continue to come under pressure. Investors withdrew £4.9bn from the sector last year against the backdrop of an ongoing equity bull run.
James Clunie's Jupiter Absolute Return, LF Odey Absolute Return and Premier Defensive Growth were among those that lost their place in the portfolios.
Other notable funds that were removed include the £5.6bn BNY Mellon Global Income fund, overseen by Nick Clay, and the £4.8bn Jupiter European fund, whose manager Alexander Darwall left the company last year to set up his own asset management firm.
Richard Woolnough’s £3.2bn M&G Optimal Income fund, John Pattullo and Jenna Barnard’s £2.8bn Janus Henderson Strategic Bond fund and Jacob de Tusch-Lec’s £2.4bn Artemis Global Income fund were also removed.
The UK equity sector was one of the areas where investors’ weighting increased.
Thirty-three funds from the three main UK equity sectors were added, with 15 coming from IA UK All Companies, a further nine from IA UK Equity Income and six from IA UK Smaller Companies.
Among those added were the CFP SDL UK Buffettology and Jupiter UK Special Situations funds.
Performance of fund vs sector in H2 2019
Source: FE Analytics
The £1.5bn, five FE fundinfo Crown-rated CFP SDL UK Buffettology fund, overseen by Keith Ashworth-Lord has been a strong performer in recent years and made a total return of 10.13 per cent in the past six months.
Ben Whitmore’s £2.1bn Jupiter UK Special Situations fund is a different beast. Its value approach has largely been out of favour for the past decade, yet it made a double-digit return of 10.02 per cent in the six months to 31 December.
The biggest UK equity strategy added to the portfolios was a passive fund: the £6.6bn L&G UK Index Trust, which tracks the performance of the FTSE All Share index.
It was one of several trackers chosen by the panellists, including the £3.4bn L&G European Index Trust, which follows the performance of the FTSE World Europe ex UK index.
There was also a big uptick in allocations to the IA Europe excluding UK sector, with 16 funds added to the portfolios, including Andreas Zoellinger’s £1.8bn BlackRock Continental European Income strategy. 
The IA Global sector, too, saw a double-digit increase in the number of strategies, including Baillie Gifford Positive Change – an impact investing fund from the growth-orientated fund house – and the £264.7m LF Blue Whale Growth fund, overseen by FE fundinfo Alpha Manager Stephen Yiu.
“Equities have been an interesting story throughout 2019,” Clarke-Williams (pictured) added. “Our panellists’ weighting in the asset class is largely a reflection of the impact of continuing low interest rates, which looks set to extend well into 2020.
“In terms of the UK, equities here have persistently lagged global markets and are sitting on fairly low valuations at the moment.
“The increased weighting in the index suggests that many wealth managers are hoping that now the uncertainty around Brexit appears to have diminished somewhat, UK equities will re-rate in line with other developed markets.”