Brexit speeds up change in fund management

Dan Jones

Political developments may have been conducted at breakneck speed last week, but the truth is we’re still where we were on June 24: no closer to finding out exactly how, or when, the UK will leave the EU.

What has changed, however, is the mood music in the investment industry. As I suggested in my last column, our new reality has already set some changes in motion.

M&G, Columbia Threadneedle and Fidelity have all revealed plans to shift operations to either Dublin or Luxembourg, although Fidelity insists its move is unrelated to the leave vote.

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Believe that if you will. I suspect it’s evidence of the way in which Brexit has altered the equation for fund houses.

The same thought process can be applied to Franklin Templeton’s decision last week to cut charges on three of its UK equity funds, and Troy doing the same on its global equity product, although both moves were clearly set in motion well before the referendum poll.

Two points, in particular, are worth noting. One is the extent of the fee cuts – ongoing charges for Franklin’s trio of funds are coming down by around 30 basis points (bps), to 55bps.

The other is performance. These products – a pair of income funds run by Colin Morton and a growth product run by Ben Russon, as well as the Troy fund run by Gabrielle Boyle – are all top quartile in their sectors over one and three years.

These are the groups’ best bets for success in future. But management are realising even these portfolios require lower prices in order to compete.

So I would bank on Brexit ushering in more decisions of this sort. That’s because asset managers already seemed to have accepted a new reality of their own.

Two years on from more or less holding the line on fund fees in the face of platforms’ bid for cheaper clean share classes, sentiment has changed.

Margins are under pressure from the FCA’s market study, and sales volumes are under pressure from uncertain investors, passives, and fewer new launches.

And notably more and more groups appear to be willing to accept a margin cut in a bid to combat the downwards shift in fund flows.

You could argue this is a structural shift in response to a cyclical problem, but the short-term outlook for inflows has been hit further by Brexit, and managers need a solution if their propositions are to stay viable. Price isn’t everything, but moves like this are a welcome development.

Dan Jones is editor of Investment Adviser