Coutts, the bank of choice for members of the royal family, has stirred controversy by transferring close to £2 billion of client funds out of the London stock market to invest in overseas ventures.
The move by this private bank, catering to tens of thousands of affluent clients, involves reducing the allocation to UK shares in six key client funds from as high as 40 per cent to a range of 1.9 per cent to 3.5 per cent, depending on the fund.
This decision has raised eyebrows, particularly given the UK government’s ownership of 28 per cent of Coutts’s parent bank, NatWest. The Treasury has been actively advocating for increased investment in UK stocks, making Coutts’s move potentially awkward.
In a communication to clients posted on its website, Coutts described its current portfolio balance as outdated and expressed its intention to adopt a more global approach. The bank highlighted benefits such as enhanced diversification, greater investment opportunities, and reduced transaction costs for clients.
Charles Hall, head of research at Peel Hunt, commented that Coutts’s shift represents a substantial £1.96 billion move away from the UK market, significantly impacting the outflow trend from UK funds. Last year alone, outflows amounted to £8 billion, according to Calastone.
Hall noted, “It’s not a surprise to see Coutts going global but not a great message for the UK, and continues the theme of outflows, which is the core problem for UK markets and IPOs. This will inevitably put further selling pressure on the UK market at a time when valuations are already depressed.”
This development coincides with Jeremy Hunt’s efforts to stimulate productive investment in the UK. The proposed changes include alterations to pension scheme rules and the introduction of a “British Isa” expected to offer tax relief exclusively for London-listed stocks. Additionally, a retail offer of shares in NatWest is in the works to bolster the appeal of UK share ownership.
The adjustments made by Coutts across its funds are substantial. For instance, the managed equity fund will reduce its UK allocation from 40 per cent to 3.5 per cent, while the balanced fund will decrease from 22 per cent to 1.9 per cent, and the cautious fund will drop from 16 per cent to 1.4 per cent.
Fahad Kamal, chief investment officer at Coutts, explained, “Currently, about 20 per cent of a standard balanced portfolio here is UK stocks, which is something of an anachronism. It would be closer to 3 or 4 per cent if it were more commensurate with the proportion of UK stocks in global stock markets. So this is a recalibration.”
Coutts faced scrutiny last year after closing the account of Nigel Farage, the former UKIP leader. The internal Coutts document cited reasons such as Farage’s views being at odds with the bank’s inclusive stance. This incident triggered a political debate, leading to the resignation of Dame Alison Rose, the chief executive, who forfeited £7.6 million in potential bonuses.
Established in 1692, Coutts specialises in serving clients with over £1 million in liquid assets, managing £43.1 billion in client assets. However, its operating profits declined from £436 million to £291 million last year.
Many portfolio managers have exhibited a home country bias, favouring UK-listed stocks, but this has hindered returns due to the underperformance of UK shares in recent years. A “neutral” weighting in a portfolio suggests a UK allocation of only about 3.8 per cent, as per the MSCI World Index, reflecting the performance of large companies in 23 developed markets.
A Coutts spokesman emphasised the bank’s ongoing significant investment in the UK and its commitment to achieving optimal returns for clients. However, concerns linger in the City regarding its diminishing influence in equity markets, evidenced by some UK-listed companies opting for listings in other jurisdictions. Last year, Arm Holdings, the renowned chip design group based in Cambridge, chose Wall Street over London for its flotation, seen as a setback for the UK market.