Why is twice as much pension cash invested in seven US firms as in the entire UK stock market?

The UK stock market has had a spring in its step over recent weeks thank goodness. And not before time.

Investors seem to have finally woken up to the value that can be found in the unloved FTSE 100. 

But the bigger problem has not gone away. 

UK listed equities are all too frequently overlooked, even, or perhaps particularly, by UK pension funds — for a whole variety of reasons that go back to Brexit and beyond.

One important factor is the tech revolution in America. The old saw used to be “no one ever got fired for buying IBM”. 

The logic still applies but the wording needs to be updated. Instead of Big Blue, today’s fund managers are piling into Apple, Amazon, Microsoft and the rest of the line-up of the Magnificent Seven.

It is difficult to blame them, but the trend has led to a massive distortion that is harming the UK.

According to figures from PensionBee, around 10% of all defined contribution pension savers’ money in the UK is invested in US tech giants.

For the average pension fund pot of £20,000 that is £437 in Microsoft, £420 in Apple, £353 in Nvidia, £286 in Alphabet — the parent company of Google — £218 in Amazon, £168 in Tesla and £151 in Meta.

Yet separate figures from investment bank Peel Hunt suggest that only 5% of the contributions coming into the Government’s workplace pension scheme Nest are being invested in UK equities, just half the level being ploughed into a handful of US mega-stocks.

It is not an easy nut to crack and the Government would be unwise to start ordering fund managers to pick stocks just because they are home grown.

But the knock-on effects of the long-term under investment in UK plc are profound and play a major role in the economy’s record of lacklustre growth broken only by the occasional unsustainable sugar rush of consumer-driven exuberance.

Reversing the trend of falling investment in UK equities should be a high priority for the next government.