But Mr Lofthouse adds that the problem is whether UK exposure is diversifying holdings the client already has, or building on existing exposure to certain stocks. “I don’t think the idea of UK investors holding UK stocks is wrong,” he says.
“But the risk is that if you’re buying lots of funds that [include] the same stock, then what we saw in the crisis is a lot of people owning Lloyds and RBS, and then BP when Macondo happened, and so the diversification aspect of investing had declined a bit.”
Jacob de Tusch-Lec, manager of the Artemis Global Equity Income fund, agrees that any investment has to be considered in conjunction with what the investor already holds.
He says: “It is not just how much UK you have, but if you have the [exposure] that your client already owns. It is different if you have names that are listed in the UK but are not the mega caps that people already have a lot of.”
Meanwhile, Newton Global Income fund manager James Harries points out the UK remains a fertile source of ideas for income portfolios, combined with the fact it is “not particularly representative of the UK economy”.
He explains: “In our case, you end up having 85 per cent of the fund overseas and you still benefit from being able to access some of the best firms in the best global markets. It is likely that an income fund, even a global one, will have an allocation to the UK and that’s perfectly sensible. If it has 40-50 per cent in the UK and calls itself global, then you’d have grounds for questioning it.”
Nyree Stewart is features editor at Investment Adviser
OPPORTUNITIES: ARE THEY BIG IN JAPAN?
Neptune suggests Japan is an overlooked market for income as 55 per cent of companies listed on the Topix index increased their dividend in 2014, while total dividend payments from the largest firms surpassed ¥9trn (£48.2bn) and share buybacks rose 76 per cent in 2014. Its research notes 86 per cent of funds in the IA Global Equity Income sector are underweight the country, while 20 per cent have no exposure.
George Boyd-Bowman, manager of the Neptune Global Income fund
“Japan gives my portfolio a good layer of diversification. The UK, Europe and US have relatively high correlations to one another, but Japan typically has a lower correlation to these markets. Emerging market firms could also be used to further diversify the portfolio, but I’m cautious in my outlook for the asset class. I have around 6 per cent in emerging markets, mostly in India, but would up my exposure significantly if the situation improved.”
