Failure to launch

Given the thousands of funds already available, DFMs could be forgiven for feeling sick of the sight of new products being marketed to them left, right and centre.

More recently, there are signs this pressure has eased in the open-ended world. Fundraising is more difficult, niche asset classes are using investment trust structures, and many providers have acknowledged the sense of fatigue by slimming down product ranges.

So you'd be forgiven for thinking there are far fewer funds being launched in the UK than there once were. As the chart below shows, however, that's not the case.

The data, from Lipper at Refinitiv, makes it crystal clear that there's been hardly any shift at all in the rate of UK-domiciled product launches since 2011. 

Is there any sign of a slowdown in short-term figures? A breakdown of launches on a quarterly basis might indicate as such. There were just 14 UK launches in Q4 2018: a significant drop from the 48 that debuted in Q4 2017 or the 41 at the end of the previous year.

Some might pin that on Brexit uncertainty, but if nothing else there haven't been many new Ireland or Luxembourg-domiciled propositions to offset this drop: offshore launch numbers for the each of the past two years were lower than the amount seen in 2016.

So this could be a sign that providers are finally waking up to the likelihood that new funds in mainstream asset classes are unlikely to find favour with wealth managers. More probable is this is the familiar sight of asset manager activity being dictated by market conditions. When volatility emerges, product launches are put on the backburner - but only temporarily. There's still little sign of an end to the product deluge.

A thinning crowd

The first Bank of America Merrill Lynch fund manager survey of the year has landed, and it reflects the slightly calmer views adopted by markets at the start of 2019. Worries about corporate leverage and the outlook for profits continue to increase, but even now just 14 per cent see a global recession arriving this year.

In that context, managers believe it's time to heed the old call of "secular stagnation" - in the short term at least - rather than all-out crisis.

But when it comes to actual positioning, there are still plenty of signs that the certainties of last year have been upended.

For the second month in a row, long the US dollar comes in as the most crowded trade for fund managers. What’s more interesting is how little consensus there is on that: it's on top despite being picked by just a fifth of respondents.

That's a significant reversal from summer 2018, when more than half of those surveyed saw tech stocks as the most crowded play. And it underlines a dilemma we discussed last week: the fact there has been nowhere to hide from market difficulties means asset allocation calls are no mean feat. In such a scenario, it's hard to even agree on what to avoid.

Its a similar story when it comes to biggest tail risks. The trade war takes this title for the eighth month in a row, but at its peak it occupied the minds of more than 60 per cent of respondents. That proportion has now fallen to less than 30 per cent. 

The question that remains unanswered is whether this breakdown of the consensus paves the way for greater stock dispersion, or whether it's simply a temporary pause before another overriding trend asserts itself. If nothing else, current market conditions do make it easier for allocators to stand out from the crowd.

Deeper into the morass

Speaking of an absence of consensus, last night's meaningful vote confirmed what has been apparent for many weeks now: when it comes to Brexit, the only thing MPs can agree on is they don't like the offer on the table.

While markets don't always get these things right, the rather nonplussed reaction overnight and this morning confirms for many, yet again, that nothing has changed.

But that conclusion isn't quite right this time. The same set of intractable problems remains, and there doesn't appear to be a majority for any one outcome in Parliament. But what may be changing is the March 29 departure date itself. 

Per this detailed FT article on attitudes in Brussels, the expectation is that D-day will be pushed to at least July. With European Parliament elections looming, the barrier to securing EU agreement for an extension to the Article 50 process is unlikely to be as big as some think.

True, the prime minister continues to dismiss the possibility of an extension, and is likely to do so until much closer to the original deadline. But wealth managers will acknowledge that kicking the can has been part and parcel of all EU negotiations for the past decade. The unhelpful conclusion, from an asset allocation perspective, is to expect more uncertainty - for longer.