Demand is still shifting to one stop shop portfolios
In my last column, I discussed the current phase of fund rationalisation being seen in the industry, following a period in which the fund universe grew almost exponentially.
The level of growth seen in the early to mid part of the past decade was clearly unsustainable. Commentary at the time challenged the industry over what was seen as a very sales-led environment. In 2006 alone, the year before the bull market ended in the UK, we saw growth of more than 10 per cent.
But within this headline there are sub-themes. One of note has been the growth in sectors covering multi-asset or multi-strategy funds or portfolios that target set outcomes or provide specific solutions for investors. This covers a range of sectors, each of which has countered the trend of rationalisation but could be categorised as providing full portfolios to the end investor.
Part of the explanation could be that this group of funds encompass some immature sectors, when compared with funds investing in a single type of asset. They are still in a state of growth from a lower base. This resilience is evidenced by new issuance and growth in assets under management in the area against a backdrop of rationalisation and mixed growth.
For example, funds in the catchily named IMA Mixed Investment 0-35 per cent Shares sector continued to grow by more than 10 per cent year-on-year, albeit from a relatively low base, but saw an increase in assets of more than 25 per cent during 2011.
Compare this against a single asset class such as IMA North America, which saw a slight but continued shrinkage in issuance and a fall in assets of more than 10 per cent with flat market returns over 2011.
This is an indication that ‘lower risk’ sectors have enjoyed the backdrop of difficult market conditions and wariness from investors. However, a pattern of continued growth within ‘solution based’ sectors is clear. It will be a long time before this area dominates its single asset class cousins, and they are not necessarily mutually exclusive, but we are seeing signs of a broader shift in demand.
Tom Caddick is head of fund management for global multi-manager investments at Santander Asset Management UK