Funds find buying opportunities

Undaunted by the recent volatility in stock markets around the world, British fund managers are using the corrections on both sides of the Atlantic to build up their exposure to UK and US equities. Tom Stevenson, financial editor, reports on this and othe

Institutional investors have turned strong buyers of UK equities, believing the 11 per cent fall in the FTSE 100 index from its peak in early October represents a good buying opportunity. The percentage of buyers minus sellers in last week's survey of 71 institutions was positive for only the second time this year.

The results of the survey show investors, with funds under management of over pounds 1,100bn, are unfazed by the recent gyrations in world markets.They still believe UK shares are not overvalued by comparison with both other equity markets and bonds, although the poll was taken before last week's interest rate rise.

British investors were just as enthusiastic about US equities. Despite having been net sellers of American shares for most of the past two years, during which the Dow Jones index has soared, UK funds have been buying the US market for two months now.

According to Trevor Greetham, global strategist at Merrill Lynch, institutions are being driven into UK shares by historically high cash weightings and by the perception that falling base rates will boost gilts, in turn underpinning equity prices.

He said the average British investing institution had 6 per cent of its portfolio in cash, around twice the level at the beginning of 1994. Managers planning to put money into the markets outnumbered those planning to raise cash by 18 per cent.