This week Bank of America Merrill Lynch reported allocations to UK equities have dipped to their lowest aggregate level since November 2008, during the flames of the financial crisis.
Based on its survey of fund managers, the bank’s analysts calculated that a net underweight to the asset class of 36% has been reached, falling steeply from a net underweight of 20% last month.
It could be argued that the underweight is an obvious, emotional and somewhat lazy call made in response to the torrent of media coverage about the upcoming referendum and the doom-laden rhetoric from all sides of the debate, rather than one based on good judgement.
Many investors seem to have taken the view that with all this so-called ‘uncertainty’ swirling around they are better off just sitting on the sidelines until after 23 June.
If you look at how the asset class has performed overall since the referendum was called however, it provides ammunition to make a case that the downside has been and gone already. There was a steep fall immediately following the calling of the vote but things have been remarkably good since.
Buying into UK funds at current levels could be a win-win for patient investors who can hold their nerve. A vote to remain seems almost certain to trigger a rally should it happen, and a vote to leave could also be greeted with enthusiasm by investors after an initial panic has passed.
The uncertainty of the vote itself will be gone either way, and if the sky has not fallen in as some suggest will happen if the vote is for an exit, then investors may cautiously begin bringing their allocations back up towards the benchmark as the politicians hammer out the details of the departure.
Something which seems lost in the hysteria is that if the vote is to leave, nothing would actually change on 24 June. In fact, nothing substantial would change for a long time.
Under EU guidelines the exit process would take two years and can be extended, giving companies and investors ample time to fully digest the implications and making money in the meantime before any tariffs or other restrictions emerge.
A seemingly underappreciated aspect of UK equities also worth reiterating, particularly at the larger end of the cap scale, is that they draw revenues from all over the world, and in many cases have limited exposure to the UK and the eurozone.