Home bias has been studied by academics since the early ‘90s. Although investor outlooks have become more global, investors still seem to have a skew towards investing in their own country, even when it would seem intuitive that a properly diversified approach should bring substantial benefits.
UK investors have been no exception, and according to Fidelity International's recent global equities survey, the trend persists today. When asked whether UK investors tend to allocate more to UK equities than they would consider optimal, nearly three-quarters agreed.
Explaining their answers, many respondents put the phenomenon down to familiarity with UK companies and domestic politics. They argued that, for better or worse, investors believe this helps them to make better decisions and engenders confidence.
‘Undervalued'
Possibilities of bias need to be balanced against the fact that today, there is actually a good case to be made for UK equities. Despite concerns around Brexit, economic uncertainty and mixed messaging from policymakers, Fidelity believes the consequent derating has made UK equities undervalued compared to other developed markets, particularly the US.
Furthermore, the strong performance of value stocks last year provided the UK with a tailwind due to its tendency towards a value bias. The start of 2023 has continued in this vein and could signal more opportunity to come.
Of course, any allocation towards the UK needs to come as part of an appropriate portfolio weighting. A properly diversified, global allocation will reduce country-specific risk and provide access to a much broader set of opportunities, sectors and investment themes.
For more analysis of the prospects for UK equities, read the full survey report
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