Analysis dispels fears of rising asset concentration

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Analysis dispels fears of rising asset concentration

The proportion of assets held by the UK’s largest equity funds has remained constant or fallen over the past five years, confounding assumptions that centralised buy lists are driving more money into fewer portfolios.

Research conducted by Investment Adviser shows a notable drop in the concentration of assets within the IA UK All Companies sector in particular. There, the proportion of assets accounted for by the 10 largest portfolios stood at 28 per cent in December 2010. That figure is now 19.4 per cent.

The drop is similar for the IA North America sector – suggesting the rise of passive products may have had a role to play – and for global emerging markets funds, which may have been affected by the soft closure of high-profile portfolios.

Nor has there been an increase in concentration in the UK Smaller Companies, Europe ex-UK, and Global sectors, all of which saw negligible changes in the past half decade.

The pattern is the same even when the analysis is widened to the top 20 funds in each sector.

The findings would appear to contradict received wisdom over the growing impact of centralised investment propositions, and fund selectors expressed surprise. Ken Rayner, a founding director at Rayner Spencer Mills Research, said: “We have been led to believe that flows were getting more and more concentrated. Maybe that is clouded by the fact there are some huge franchises out there that tend to be at the forefront of people’s minds.”

Morningstar’s UK director of manager research Jeremy Beckwith said: “It’s only a few funds that see the bulk of the flows, so I [am] a little surprised… concentration is down a bit.”

Mr Beckwith added, however, that he did not see a “great issue” with concentration, saying the UK retail fund market was very competitive in this regard.

The FCA said last month, in the terms of reference for its asset management study, that the industry “does not appear particularly concentrated… however, it is possible that parts of the sector may still have higher areas of concentration.”

The regulator pointed to research by the Investment Association (IA) to back up its initial claim. The trade body has noted in its past two annual surveys that the distribution of fund flows had become more broadly-based in recent years.

But concentration may be rising in some sectors. The top 10 funds in the UK Equity Income sector now account for 60 per cent of assets, up from 51 per cent in 2010. The analysis incorporated the sizeable minority of equity income funds that now sit outside the sector as a result of missing yield requirements.

IA SectorTop ten funds as a % of total sector assets (2010)Top ten funds as a % of total sector assets (2015)
UK All Companies2819
UK Smaller Companies5352
Europe ex-UK4142
North America4535
Global Emerging Markets6752
UK Equity Income5160