Barclays Stockbrokers' clients favoured UK funds in February, with 11 of the top 20 purchased funds having a UK focus. Alastair Thaw, director of Barclays Stockbrokers, says: "Our fund investors' appetite for UK-focused funds has not diminished, continuing the trend we have seen throughout the second half of 2013 and into 2014."
This followed the Investment Management Association's revelation that UK equity funds were the best-selling region in January 2014 for the third consecutive month, with net retail sales of £644m.
Meanwhile, a major survey of 11,113 investors in 22 countries by Franklin Templeton found that 29 per cent of respondents believe that the best equity returns will come from the UK in 2014, up from 23 per cent in 2013.
You may be feeling the pressure to make a decision as the deadline for investing your Isa draws nearer. But a hurried 'ad hoc' investment decision can carry considerable risk to your wealth, warns Bestinvest. In particular, it is worth investing some time thinking about asset allocation - how you spread your portfolio across different categories of investment and markets - before getting into the process of selecting individual funds.
Even if the experts are tipping a particular market, such as the UK, it may not make sense for you to invest a new Isa there if you are already very heavily exposed to it.
Lars Kroijer, author of Investing Demystified, says: "People take too much concentration risk. Many investors have all their eggs in the London economy. For example, they may live in London, have a job in the financial sector, a pension in London, a London flat or house, and may expect to inherit from parents in London. They then buy stocks in and around London, adding to their existing concentration risk. If the London economy does well you will do well, but if London goes belly up, everything is linked."
Jason Hollands, managing director of Bestinvest, says: "Many investors skip over asset allocation, which is a particular peril facing users of so-called DIY platforms, many of which provide no tools or guidance to help investors select an asset allocation model. Diversification should help reduce overall volatility in your portfolio, as well as exposing you to a wider set of opportunities."
The mix between general categories such as equities, bonds and property is the starting point, but then you need to delve into achieving a good mix across geographies. You also need a spread between small, large and medium-sized company shares, industries and investment styles.
Mr Kroijer says that investors wanting a one stop solution to asset allocation should try to pick a tracker fund or exchange traded funds that tracks the broadest equity index they can find. "You will be buying thousands of stocks in the US, Japan and other markets around the world," he says.
iShares MSCI World UCITS ETF Acc (SWDA) tracks the MSCI World Index, a stock market index of more than 1,600 stocks from 23 developed markets, including the UK. It used physical optimisation, meaning it doesn't hold all the stocks in the index. However, it has a good record of tracking the underlying index since it launched in 2009. Its TER is 0.40 per cent. The base currency is US dollars and the income is reinvested in the fund.
If you want to diversify your equity exposure away from the UK in one move, consider the db x-trackers FTSE All-World Ex UK UCITS ETF (XWXU). This tracks the FTSE All World ex UK index using indirect replication. There are more than 2,700 stocks from 54 countries in the index, so this method of tracking makes sense. The portfolio structure is a fully funded collateralised swap and the ETF’s TER is 0.40 per cent. The income is reinvested in the fund.
