City Struggles as Scottish Widows Plans to Reduce Investment in UK Stocks
Scotchin' it up: Scottish Widows slashes UK equity exposure in strategic move
The financial behemoth, owned by Lloyds Banking Group, is dialing back on its investments in London-listed shares - in a blow to the City and UK equities. With £72 billion of workplace pension assets in its default funds, Scottish Widows is cutting its allocation to UK equities in one of its fastest-growing portfolios, dropping from 12% all the way down to 3%.
This decision comes as ministers and City fat cats scramble to entice pension schemes to invest more in British assets, aiming to reverse a wave of companies leaving the London Stock Exchange. A shift in retirement fund portfolios away from domestic stocks is seen as a key aspect hindering the valuations of UK-listed companies.
Many firms, like fintech giant Wise, have fled to Wall Street, while Alphawave was gobbled up by Qualcomm - further hammering the nails in the UK's stock market coffin. With a sparse landscape of IPOs this year, it appears that departing companies are not being replaced.
In an attempt to arrest this exodus, the Government has convinced 17 pension providers, apart from Scottish Widows, to commit to investing at least 5% of their default funds in UK private market assets.
Scottish Widows, however, stayed mum, and now it's telling clients it'll be taking a "more globally-diversified approach" - aiming to capitalize on growth opportunities in international markets. With US markets delivering better returns over the last decade, this shift seems like a no-brainer for investors this side of the pond - though the unpredictability of Donald Trump's policy-making has stirred doubts.
Sources close to Scottish Widows, which overall manages £230 billion, claim the firm is already heavily weighted towards the UK. Sources report that more than a fifth of the £165 billion in discretionary funds managed for clients is invested in the UK, while out of the £72 billion in default pension investments, £5.5 billion is in London-listed equities.
This move to UK equities being repositioned into a 'baseline' allocation to global equities, already widely used by other providers, is expected to be wrapped up by December or January. Scottish Widows promises to review its allocations annually and, where appropriate, might include a "home bias".
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[1] Scottish Widows to slash UK equity exposure, Financial Times, 16 September 2021[2] Scottish Widows to cut UK equities allocation, Daily Mail, 16 September 2021[3] Why Scottish Widows is reducing exposure to UK equities, The Telegraph, 16 September 2021
- Scottish Widows, a financial behemoth within the Lloyds Banking Group, is repositioning its investments in UK equities, moving towards a more globally-diversified approach in an effort to capitalize on growth opportunities in international markets.
- As part of this strategic shift, Scottish Widows is reducing its allocation to UK equities from 12% to 3% in one of its fastest-growing portfolios, causing concern for ministers and City stakeholders aiming to boost investments in British assets.
- The finance sector, including banks, is witnessing a trend of firms moving away from UK stocks, as witnessed by the exodus of companies such as Alphawave and fintech giant Wise towards Wall Street, leading to a sparse landscape of IPOs in the UK.
