IG Prime, the institutional prime brokerage unit of IG Group has released the survey findings on the influence of patriotic bias on UK hedge fund managers’ investment strategies.
IG Prime’s white paper, Patriotism in Portfolios: An analysis of Hedge Funds, discovered that UK hedge funds’ patriotic bias has muted efforts to diversify portfolios.
IG Prime surveyed 250 hedge fund portfolio managers and hedge fund traders to understand their diversification strategies, and factors they consider when trading internationally. Data showed that patriotic bias exists, with 96% of survey respondents claimed that UK stocks are more successful compared to other markets. That bias has influenced portfolio asset allocation. Pre-pandemic, 59% of UK hedge funds stated that they had dedicated between 76–100% of their portfolio to UK investments, whilst 25% dedicated 51–75%, 14% had invested between 26–50% of their funds to UK stock, and 2% had invested just 25% or less.
Internal and external factors have influenced hedge funds’ investment decisions, with 57% of all respondents citing ‘pressure from management’ and an equal number of respondents noted desire to ‘benefit from other strong performing markets’ as a factor to diversify outside of UK assets. Hesitancy to diversify has remained, as 46% of all survey respondents noted they felt tentative about trading in international markets due to lack of experience. Similarly, 46% of all respondents also said they were concerned about the impact of political volatility on the market.
There has been marginal shift towards European stocks since the pandemic began, as the number of hedge funds investing 26-50% of their portfolio to European stocks has increased from 6% pre-pandemic to 8 percent. Survey findings found that UK hedge funds have dedicated marginally less of their portfolios to stocks in both the US and Asia since the pandemic began.
