Bearing up

One month of jitters was all it took to shatter investor confidence. After a serene start to the year for risk assets, June’s global fund manager survey from Baml has made waves by revealing fund managers are now at their most bearish since the financial crisis.

The shift in sentiment is apparent wherever you look: equity weightings fell 32 percentage points and now sit at a net 21 underweight. Cash positions rose to their highest level since 2011. Bond allocations are at their highest since the same year - though it’s a sign of the times that this “peak” still equates to a net underweight of 22 per cent.

The culprit behind this rush to safety appears pretty obvious: the trade war continues to be seen as the biggest tail risk for markets, and the proportion thinking so has jumped 19 percentage points to a net 56 per cent.

As ever, there are plenty of second-tier findings that also stand out. Lately it’s sometimes felt that no matter what the question, US equities are the answer - and the Baml survey is no different. Allocations to European, Japanese and EM equities slumped, but US exposures ticked up.

Equally, managers might have a degree of sympathy for the US president’s concerns about the dollar - if not his means of expression. A record proportion - a net 60 per cent - now think the greenback is overvalued. 

And yet, despite all this, the actual events of June have belied this fear and loathing. Bond yields may still be falling, but equities have resumed their upwards path. The suspicion is that plenty of fund managers are still relatively serene about the state of stock markets - or at least content that monetary policy will keep the party going for a while longer.

The same may go for wealth managers as well. In the coming days we’ll be looking at what discretionaries did themselves in light of last month’s renewed drops. The odds are they too will have been calmer than recent headlines suggest.

Model professionals

There’s more than one way in which stuttering growth can affect a DFM, of course. Economies are under pressure, and so too is the wealth management industry. Client acquisition has become tougher, and the adviser market is no longer such a fruitful source of new business.

Now comes the emergence of a new challenge on the latter front, in the form of a notable development in the model portfolio space. Intelliflo, the back-office tech provider bought by Invesco last year, has unveiled a new system aimed at improving advisory model portfolio processes.

Much was made yesterday of Invesco using this service to offer a low-cost MPS to advisers - and it’s true that fees capped at £70 per month (ex VAT) are yet another sign that margin pressure isn’t going away. But it’s the wider application of the Intelliflo technology that may have more serious consequences for wealth managers.

There are a number of structural reasons why advisers might outsource to a DFM - and plenty of administrative ones, too. Some advisers hoping to gain discretionary permissions have belatedly realised the cost and effort involved isn’t worth it. That means those keeping things in-house resign themselves to the often-arduous process of gaining client approval for each and every change. Lags in this process often forces them to run an ever-expanding series of slightly different portfolios. Intelliflo aims to automate the contact process as much as possible, as well as providing a range of other services.

There are still hurdles to overcome, admittedly: Mike Barrett, consulting director at the Lang Cat, describes the service as “really impressive” - but notes that “the key to this will be the integrations with the platforms”. 

Sort that, and advisory portfolios could be given a new lease of life. The threat to discretionaries is obvious; another reason to do everything they can to maintain adviser clients’ growing satisfaction with their services.

Transfer trends

The slab of pensions money that's helped underpin UK retail investment flows in recent times may start to erode very soon. This morning brings yet another warning from the FCA that advisers’ defined benefit transfer practices just aren’t good enough. 

Its data is stark: despite the regulator’s stance that intermediaries should begin from the position that a transfer isn’t suitable, 1,400 of the 2,400 firms assessed approved more than 75 per cent of their clients for a transfer.

An end to such practices may not be as swift as critics hope for, however. News that the FCA is finding adviser recommendations to be “deeply concerning and disappointing” will put a few providers off at the margin, as will individual enforcement actions.

But the structural incentives against which the watchdog is fighting - driven by low gilt yields and the introduction of the pension freedoms - are simply too strong. That means pensions cash will continue to flow into fund structures, and towards wealth managers. The onus is on the industry to prove itself a capable steward of this retirement money.