UK investors are adjusting their portfolio allocations in response to macroeconomic and geopolitical factors, with increased exposure to small cap equities and a steady focus on high-quality fixed income, according to asset manager Janus Henderson’s report.
The report, which analysed 1,229 UK portfolios from March 2024 to February 2025, reveals a growing preference for domestic equities, particularly in small and mid cap stocks. Investors are also maintaining strong allocations to defensive fixed-income strategies, balancing growth opportunities with stability amid inflation concerns, tariff risks, and central bank policy divergence.
UK investors have reduced exposure to US equities while keeping European allocations steady, according to the report. Despite the strong performance of US markets, recent volatility has encouraged investors to seek opportunities closer to home. Within UK equities, large-cap allocations dipped from 70% to 68%, while small cap exposure rose from 8% to 9%, signalling a shift toward higher-growth segments.
Fixed income allocations remained largely unchanged, with a focus on stability amid inflation and policy uncertainty. The average UK portfolio duration increased slightly from 3.2 to 3.3 years, suggesting growing confidence in receding inflationary pressures. Meanwhile, defensive strategies saw a modest increase, with allocations rising from 61% to 63%, as investors continued to favour government and corporate bonds.
ETF investors shift from US to European equities
“UK investors are positioning for a more resilient future by balancing risk and stability,” the report highlighted. “As geopolitical and economic landscapes evolve, investors are actively rebalancing portfolios to adapt to shifting market conditions.”
The report also highlighted a pullback from liquid alternatives, as investors scaled back hedging strategies amid a sustained equity bull run. The average allocation to passive funds dipped slightly from 44% to 43%, while long-short equity exposure more than halved, contributing to a marginal decline in alternative investments.
While portfolio adjustments reflect a cautious but opportunistic approach, UK investors remain focused on long-term resilience, balancing exposure to emerging growth areas such as small cap equities and technology with steady allocations to defensive assets.
Matthew Bullock, head of portfolio construction and strategy, Emea & Asia Pacific at Janus Henderson, said: “The findings from our inaugural Portfolio Panorama report highlight the careful approach UK investors are taking in today’s market environment. The increased focus on small cap equities suggests a search for new growth opportunities, while strong allocations to fixed income reflect a continued emphasis on stability. It will be interesting to see how investors act over the next few months and whether the decline in appetite for long-short equity strategies is continuous or a short-term trend. As global market dynamics evolve, understanding these portfolio shifts will be key for long-term investors.”
