No Happy medium?

The wait for value to outperform growth has gone on a long, long time.

Tradition has it that value always wins out in the long term. But as the delay becomes more awkward for those with money on the line, it's the short term that's being given the attention.

That was underlined again at the start of this month, when market moves over a handful of days were seized upon as evidence that a shift may be underway.

For some analysts, 24 hours was enough: Morgan Stanley remarked that the MSCI World Value had produced the "best one day outperformance relative to World Growth since May 2009".

Fittingly, it's still too soon to say whether this was yet another false dawn for the style. What is apparent is that DFMs started to position for a change in market leadership in advance of Q3. Portfolio changes are focusing on value managers again – or at least starting to edge away from growth slightly.

In this context, the below chart from RWC has particular relevance: those seeking a halfway house between the two styles have far fewer funds to choose from than they may think.

RWC has a stake in this game, of course, having launched a new fund for Nick Purves and Ian Lance targeting value shares.But anecdotally the data has the ring of truth to it.

When the outperformance of growth managers has persisted for so long, it's inevitable that many will come to view their holdings as representative of the market as a whole rather than a particular style.​

For those willing to take the plunge, one blunt solution would be to look for managers with a tech underweight. Much of the switch seen at the start of the month was down to little more than tech underperforming. By the same token, not all value plays did well even then. As ever, easy answers are in short supply - and so are non-growth fund options.

Under-owned funds

Last week saw our sister publication, FTAdviser, celebrate the best examples of active management over the past year at the Investment 100 Club awards.

Members of the club are picked using a quantitative process that's based on long and short-term outperformance. A panel of fund selectors then decide the ultimate winners using a series of other metrics.

As you'd expect, then, there are some familiar names among the winners: Merian GEAR, Schroder Asian Total Return, Man GLG UK Income. But there are several funds that aren't held anywhere in our database of wealth manager fund picks – and are consequently of interest to DFMs looking to stand out from the crowd.

A few are investment trusts, like Lindsell Train IT, where the preference for an Oeic or unit trust version has won out. But two are open-ended: T Rowe Price US Blue Chip Equity and BNY Mellon EM Corporate Debt.

There are other notables, too. UBS Global Emerging Markets Equity, held by just one model portfolio range in our database, has outperformed on the upside and downside in recent years. That's of particular relevance given EM equity selections have been a rare misstep for DFMs this year.

SDL UK Buffettology, which as we noted yesterday has fast become a retail investor favourite, is also still lacking wealth manager backing despite now being £450m in size. Just one MPS range includes it in their ranks.

Finally, it's worth highlighting some higher-profile winners that are missing from most portfolios.  Man GLG Continental Euro Growth, run by Rory Powe (old memories die hard, perhaps), Bryn Jones's Rathbone Ethical Bond, and Eric Holt's Royal London Sterling Extra Yield Bond fund are all far from consensus picks as it stands. 

Manager M&A returns with a bang

Invesco has agreed to buy $250bn US rival OppenheimerFunds - a deal first reported by Ignites, a sister publication of ours from across the pond – and the deal is notable for two particular reasons.

Like another recent Invesco purchase, the ETF arm of Guggenheim Investments, Oppenheimer's presence in Europe is minimal. Its Ucits offshoot of the world's second largest emerging markets fund may prove a useful alternative for Invesco at a time when latter's EM and Asia heads are retiring. But for DFMs the immediate impact of the deal is negligible.

The indirect effect is that the bar for what constitutes a 'large asset manager' just got higher still. Invesco is now at the $1.2trn mark in terms of assets. The tension between providers who believe bigger is better, and buyers who think the opposite, will be rising again.

Yesterday's $5.7bn deal has also been touted as a vote of confidence in active management: Oppenheimer has some popular smart beta funds, but these are still a small part of its business. The move can equally be seen as Invesco spreading its bets.

The purchase of Guggenheim came soon after it completed the deal for fellow ETF provider Source, a name more familiar on these shores. Closer to home, albeit on a much smaller scale, there was also the acquisition of back-office systems provider Intelliflo. If you want to be everything to everyone, you'll need size to get there.