UK shares coming back into favour - report

Confidence in UK shares is returning as IFAs pick the domestic market as the best home for clients' cash over the next quarter, shunning overseas markets.

UK Shares and Bonds were the most popular sectors chosen by advisers for the next three months, according to the latest quarterly figures from the Virgin Money Investor Intentions Index.

It tracks IFA confidence in ten different investment sectors, plus how they advised their clients to invest their money over the preceding quarter.

Approximately 81% of IFAs will advise clients to invest in UK shares and 79% in bonds, while only 31% and 29% of advisers recommend commodities and gold respectively which remain the least popular sectors.

Despite the FTSE's recent rollercoaster ride, which has seen the index plunge as low as 3,665 in October from 6,087 in May, recession fears and worries about less familiar investments have prompted a 'dramatic swing in sentiment' against overseas markets.

Confidence in the emerging markets has slumped with index figures showing the largest decrease in the number of IFAs recommending the sector to clients in the past quarter.

In the three months to August, it found 71% of IFAs favoured the emerging markets, while in the three months to November, only 41% were recommending the sector to their clients.

Cash was the most popular sector for advisers over the past quarter, with 77% of IFAs recommending it to their clients, ahead of 70% selecting UK shares.

Although Scott Mowbray, spokesman for Virgin Money, believes it would be brave to proclaim the market has bottomed, "advisers are telling us that UK shares are starting to come back into favour.

"IFAs are now happier to recommend them to clients but caution still reigns supreme," he adds.

He believes the major theme from this quarter's index results is a 'huge drift away' from foreign markets as investors.

"The Far East and emerging markets have taken a beating as IFAs remain unsure about how events in America will affect foreign stocks," adds Mowbray.

The Virgin Money Investor Index tracks 10 sectors: UK shares, European shares, green investments, cash, commodities, property, bonds, Far East emerging markets and gold.

A total of 100 IFAs were interviewed by George Street Research in November 2008, against a cross-section of advisers throughout Great Britain, with a weighting towards those whose business is primarily with investment clients.