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Fund selection then and now: Have wealth firms scratched the three-year itch?

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Three-year itch

Casting minds back to early 2016 brings a number of clear parallels with this year’s market developments, but the deja vu doesn’t stop there: the evidence suggests large swathes of DFMs' favourite fund selections back then are just as popular nowadays.

While our own research covers MPS ranges as they stand now, analysis conducted by the Lang Cat in autumn 2015 (and published in early 2016) allows us to see what’s changed.

The answer is: not all that much. The consultancy identified the 20 most commonly held funds in DFM portfolios at the time. Here we encounter many familiar names in the bond and equity space, from Stewart Investors Asia Pacific Leaders to Artemis Income and Jupiter Strategic Bond.

We've run the names through our own database - this time assessing their popularity versus other holdings within the relevant asset class. The two datasets incorporate a slightly different combination of DFMs, but the results are strikingly similar.

Four funds on the Lang Cat list - the Jupiter and Stewart offerings mentioned above, as well as JPM US Equity Income and Vanguard Global Bond Index - remain the most popular in their respective sectors. A further eight still rank among the uppermost echelons in their own peer groups.

A handful have fallen back, either because of differences in the databases or separate issues. Threadneedle UK Equity Alpha Income - an underperformer on a three-year view - now sits in the third quartile in popularity terms. Neptune UK Mid Cap sits in the same space, likely in part due to the way mid-caps have fallen from favour in the post-referendum years. And Mark Barnett's Invesco Perpetual Income fund fails to feature in any MPS ranges covered by our tracker.

But these are exceptions rather than the rule. The data as a whole suggests that if there is a bunching issue when it comes to wealth managers' fund selections, it's seen them cluster around the exact same strategies for several years now. 

A second bite

Recent weeks suggest the UK government has never heard of Einstein's definition of insanity: trying to do the same thing over and over and expecting a different result. But there are signs that coming back with the same offer may prove rather more fruitful for fund managers.

Earlier this week both Merian and Mobius Capital Partners unveiled new issuance plans for their recently launched trusts - months after both failed to meet initial fundraising targets. Merian is looking to raise up to £50m for its Chrysalis strategy via a placing; the trust run by Mark Mobius - who made waves this week by suggesting the UK increasingly resembles an emerging market - is to pursue a £20m tap issuance.

Those moves are confirmation the environment is rather different now for both companies. EM equities are back in favour, and Merian's trust, investing in unlisted businesses, no longer has to contend with "red October" when seeking investor interest. Most importantly of all, both companies are now trading at a premium to NAV. 

Wealth managers who shunned the pair last year may be giving them a second look in the coming weeks. Still, neither can rival the modern-day giants of the trust space: alternative income strategies. The Renewables Infrastructure Group this week raised £302m in a share issue, having targeted a £170m raise.

Our database reveals the trust has little presence in model portfolios, but the biggest UK DFMs remain significant backers of the strategy via clients' bespoke holdings. Some alternative trusts have come a cropper in recent months, but demand is as strong as ever for those that are still producing the goods.

Fine lines

The £34.3m fine issued by the FCA to Goldman Sachs yesterday follows swiftly on from a similar fine it handed to UBS earlier this month. Both were for Mifid transaction reporting failures - a sign, you may think, of the new era of regulation now upon the industry.

Except both these fines relate to the original Mifid, not Mifid II. The clue is in the banks’ identical opening line to their statements: “We are pleased to have resolved this legacy matter”. 

Then again, these are the first fines of their kind in almost four years, according to the FCA’s own data. It feels a little too coincidental that the regulator would start making more of legacy Mifid failures at a time when many firms - banking or otherwise - are looking again at how they deal with implementing the latest rules. Fund/wealth managers et al, be warned.

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