Articles - Advisers refuse to give up on Europe in FE AFI rebalancing

 IFAs allocate to multiple funds from M&G and Schroders.

 The latest six-monthly rebalancing of the FE Adviser Fund Index (FE AFI) granted the IFA panellists a chance to reconsider asset allocations and fund selections in light of the European sovereign debt crisis and high market volatility.

 FE calculates three AFI indices - Cautious, Balanced and Aggressive - by collating fund and asset allocation recommendations from a panel of leading UK investment advisers. The indices are rebalanced twice a year and this latest review, effective 1 November 2011, marks their 15th season.

 There is evidence that IFAs are looking beyond the headlines to where value can be found amid the knock down in European equity valuations. Ignis Argonaut European Income was added as a new entrant to the Balanced and Cautious indices. The FE AFI Cautious Index was already using Ignis Argonaut European Enhanced Income, while the FE AFI Balanced and Aggressive portfolios include Ignis Argonaut European Alpha.

 For aggressive investors, however, the IFA panellists recommended exposure to European equities be cut by 2%, to comprise 10% of the portfolio and hiked up UK exposure from 30% to 34%. The FE AFI Balanced Index saw its broad international exposure slashed by 5%, with Japan gaining 1% and the UK gaining 2%.

 IFAs reacted to worsening macroeconomic sentiment by turning bearish on credit risk. In particular, they slashed exposure to corporate bonds for the FE AFI Cautious Index by 7% to 18%. Overall fixed interest exposure for cautious investors was trimmed to 38% from 41%.

 Rob Gleeson, Investment Product Consultant at FE, said: "It is encouraging to see that, despite extreme market turmoil over the past six months, the IFAs did not panic or recommend dramatic portfolio shifts. The asset allocations and fund selections within the FE AFI indices should help investors of varying risk appetites to steer a safe course through the storms of the investment markets."

 Advisers showed a clear preference for a handful of funds and managers. The panellists chose 125 funds from 46 providers to populate all three FE AFI indices. As each Index contained 109-112 funds, there was considerable overlap. The most popular groups were M&G, with 11 of its funds used, and Schroders with nine funds.

 The most popular funds across all the indices were, in order of preference, First State Asia Pacific Leaders, AXA Framlington UK Select Opportunities, Aberdeen Emerging Markets, L&G Dynamic Bond and M&G Optimal Income. This latest rebalancing saw First State entrench its position in the indices with the First State Global Emerging Markets Leaders and First State Global Emerging Markets Sustainability funds added in.

 For aggressive investors, the three funds in which the IFA panel had most conviction were First State Asia Pacific Leaders, Schroder UK Alpha Plus and M&G Global Basics. Those highest prized for balanced investors were L&G Dynamic Bond, First State Asia Pacific Leaders and M&G Property Portfolio. For cautious investors, the IFA panel gave the highest weighting to M&G Optimal Income, L&G Dynamic Bond and Artemis Income.

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