The all-conquering US

When commentators said the US risked turning Japanese in the aftermath of the financial crisis, it's fair to say they were talking about the stagnation of 1998, not the euphoria of 1988.

But as Mark Tinker of Axa IM points out, current market conditions look pretty reminiscent of the post-Black Monday surge in the Nikkei. He thinks the decoupling of US and global indices seen over the summer has similar drivers: a global supplier of liquidity bringing its cash home.

Other similarities include corporates being the biggest buyers of equities, and index concentration. Japan in the late 80s made up 50 per cent of global indices, which meant a lot of investors, keen to avoid benchmark risk, just kept on allocating to the country and in particular its biggest shares.

As Tinker sums up: Currently the US is over 40 per cent of global market cap, but almost certainly does not represent 40 per cent of global opportunities in equities.

Global funds aren't overly popular with DFMs – that's a story we'll revisit another time – and the selections that are made tend to congregate around a handful of the most familiar names (think Fundsmith Equity and Artemis Global Income).

Still, we've charted the most widely-held global equity and global equity income funds in our database, and ranked them by their exposure to US equities.

Of course, Fundsmith's US exposure isn't the same as that of Scottish Mortgage, and so on. But many of the US exposures are at the upper end of the scale, if not quite at the 61 per cent MSCI World weighting (the measure falls to 51 per cent for the MSCI World High Dividend Yield index, not tracked by most income funds but still a useful proxy).

Conversely, R&M Recovery, one of the most widely-held global funds, has just 15 per cent in the US. That puts it among the very lowest in the whole sector, rivalled only by a handful of funds such as Kennox Strategic Value and Liontrust Global Income. This kind of consideration will be playing on selectors' minds at the moment.

Big beasts and Brexit

Brexit means…temporary fund suspensions. At least, it does for M&G investors: the company is briefly suspending trading on 21 products as it transfers non-UK investor assets to Luxembourg.

This, admittedly, isn't the end of the world. The first round of suspensions kicks off this week, but the whole thing is staggered from now until March and each stage will affect relevant investors for less than three working days.

As contingency plans gear up, more businesses will probably follow suit in the months ahead. Psigma's Rory McPherson confirms such suspensions are manageable. But logistical issues like these do make him wary of holding monster funds:

It's not too much of a big hassle, so long as it's done quickly and the markets stay well behaved during the transition, but it's not ideal and wards us away from big, big funds.

This reminds us that M&G has an elephant in the room in the shape of Optimal Income. Richard Woolnough's fund has enjoyed a return to favour among investors, with assets swelling again to now stand beyond the £23bn mark. 

It too will be temporarily suspended, next March, and its size means M&G will hive off several billion into the new Luxembourg structure. From that point, the UK fund will superficially appear much smaller, but some are already beginning to have problems with its proportions once again.

Clarion Wealth, an advice firm, sold the portfolio this summer because of concerns that it had become too large. Sending a chunk of assets overseas won't be enough to stop others asking the same question should the fund keep swelling in size.

Active vs passive: How DFMs use the big providers

Having scale in the passive game works well when markets rise, but the catch is that household names have more to lose when things turn south.

BlackRock had a reminder of this in Q3 when institutional investors pulled more than £23bn from its non-ETF passive products. On the plus side, its retail business continued to see inflows into both active and passive funds.

Attempting to balance those two business lines has become increasingly important for asset managers seeking to hedge their bets in a tough market. But there are very few firms who are able to successfully do both.

Though plenty of active managers are dipping their toe in the smart beta waters, there are probably just four firms in the UK market who have established active and passive offerings: BlackRock, Fidelity, L&G and UBS.

We gauged their respective popularity among DFMs with our MPS tracker. In BlackRock's case, its passive funds are now more widely held than active products - not least due to the growing popularity of its ETFs alongside more conventional tracker products.

(To be precise about what the chart is showing: the bars represent the number of times a provider's active or passive funds feature in the MPS ranges tracked by our database, not the number of individual funds).

Fidelity, however, continues to hold back the tide, perhaps because it continues to focus on trackers alone, not ETFs. Either way, its active funds remain more popular - and usage is spread across a wide range of managers, not just one or two "stars" like Nick Price.

For UBS, passive funds make up a small part of its onshore offering but they have already superseded its active funds. And at LGIM, such a shift happened long ago. It's long been viewed by wealth managers as predominantly a passive provider.