Royal bank Coutts was caught in a fresh row today after it revealed plans to shift an estimated £2 billion of clients’ funds out of the London stock market into foreign company shares in another blow for the City.
The bank, founded in 1692 and still almost 30% owned by the taxpayer, told clients earlier this week that its “home bias” towards British company shares was an “anachronism” that needed “funadamental change”
The move risks another damaging public row following the “debanking” scandal around Nigel Farage. Details of the former Brexit Party leader’s account were leaked by NatWest CEO Alison Rose to a journalist, leading to her departure.
NatWest is the ultimate owner of Coutts. The government is planning to sell down its stake in NatWest in a “Tell Sid” style public sale later this year.
In a “Coutts in Conversation” event earlier this week the bank’s Chief Investment Officer Fahad Kamal said: “Currently, about 20% of a standard balanced portfolio here is UK stocks, which is something of an anachronism
“It would be closer to 3% or 4% if it were more commensurate with the proportion of UK stocks in global stock markets. So this is a recalibration. We are adjusting our compass accordingly.”
Kamal said the UK market looked very similar to how it was 100 years ago, but the US market had changed dramatically in that time, with many of its companies not even existing 20 years ago.
His colleague Multi-Asset Strategist David Broomfield added “To get access to the widest and best opportunity set, we need to be part of global equities. It gives us much larger reach and enables us to get access to today’s mega themes – such as technology – which are more difficult to access through the UK.”
The money will be moved from six Coutts UK equity and bond funds to those with a more global focus. It will now have 65% of its assets in North American, 13% in Europe, and just 3% in the UK.
In a note headed “Selling down the UK”, Peel Hunt analyst Charles Hall notes the irony of the Coutts move
“The government is aiming to sell down…its stake in NatWest in the summer, but at the same time Coutts is reducing fund allocations to the UK,” he said to clients. He added: “This will inevitably put further selling pressure on the UK market at a time when valuations are already depressed.”
The move comes as the government tries to persuade investors of the merits of what has been a moribund London market.
Chancellor Jeremy Hunt unveiled a “British ISA” in his last budget which allows £5,000 a year to go into UK shares tax free, on top of the present £20,000 allowance.
While the Coutts move is bound to be seen as controversial, the bank is merely following fashion.
Figures from trade body the Investment Association show that small investors are yanking money out of the UK stock market at a record pace. Around £25 billion has been removed from UK share funds in the last two years.
The London stock market has struggled to attract new flotations because of this lack of enthusiasm for home shares.
Top fund managers are shunning UK stocks, with Terry Smith, one of the most successful City investors, saying he regards most big UK companies as “uninvestable”.
A Coutts spokesperson said: “We retain significant investment in the UK and our investment strategy is to achieve the best returns for our clients in the most attractive markets.
“We closely follow the performance of all markets in line with our individual client needs and our House Views are subject to constant review.”
