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June was an inauspicious month for those who favour active management - DFMs among them. They feared the gating of Woodford Equity Income would have knock-on effects on attitudes to the retail investment world as a whole. Six weeks on, newly released fund flow data provides the first opportunity to see how those issues are playing out across the industry.
UK fund sales estimates from Morningstar do suggest the funds industry’s return to net inflows in April and May might have proven shortlived. The number of strategies suffering significant outflows comfortably outstrips the proportion that took in money on the month.
Whether June’s caution is down to the Woodford effect alone is tougher to assess. There are some obvious victims: Invesco High Income saw an estimated £171m depart - worse than even the £156m withdrawn from Woodford Income Focus. That was likely due to worries about Woodford IM selling large stakes in the companies it backs, many of which are also held by his former funds.
But while other UK equity income strategies also suffered on the month, it’s harder to attribute their travails to the same source. Majedie UK Income saw a jump in outflows, but its own performance issues will have played a part. A simultaneous £100m-plus withdrawal from the fund house’s UK Equity fund would appear to confirm that theory.
Another stalwart of the sector, Artemis Income, also saw money depart in June. But its estimated £64m outflow is only slightly higher than the average run rate seen over the past year.
Aside from that, it was more or less business as usual for the UK funds universe. Strategies in favour in recent months remained popular, and vice versa. These flows will be driven by professional investors less likely to have had their faith shaken by events at Woodford IM, of course. But while June’s drama may have derailed the fund flow recovery seen at the start of the second quarter, there’s little sign it’s yet had a material effect on confidence.
A fluid situation
Those hoping for a quick resolution to recent reputational issues received a boost this morning, via the news that Gam has completed the sale of assets from the absolute return bond fund range it suspended last August.
The fund manager has ended up liquidating those assets at a 0.5 per cent premium to their valuation as of last September. That will be grist to the mill of those who say fund suspensions are the right tool to use in these scenarios.
On the other hand, the disconnect between this premium and the enduring question marks over Gam’s own future is the perfect example of how gating can help investors while fatally damaging an asset manager at the same time.
The FCA remains - for now - in the camp that suspensions are the right answer to illiquidity problems. The Bank of England has tended to focus more heavily on the wider risks of liquidity mismatches.
The two issues aren’t mutually exclusive, but concerns over potential systemic impacts are foremost in minds at the moment. Last week saw the announcement that the FCA and Bank will team up on a review of how funds deal with liquidity issues.
Those who say the current system works well enough, and that there’s limited evidence of a systemic problem, may feel their voices are being lost in the furore.
A key line from the Bank’s announcement noted that previous work, which suggested funds’ assets be consistent with their redemption terms, “did not prescribe how this should be achieved”. Wealth managers may now wonder if a more hands-on approach will end up producing broad-brush conclusions that make their lives a little harder.
Another week brings another disruptor staking a claim to the middle ground of wealth management. It’s not hard to see why so many firms are attempting to move in on this market: investment advice is expensive, and doesn’t cater well to the likes of mass affluent clients.
But resolving these problems is easier said than done. Clients who sit in the middle ground when it comes to assets don’t necessarily want a halfway-house solution - particularly if that equates to a reduced service at something close to full wealth management fees.
The travails of the original robo-advisers show that those with limited amounts of money to invest are hardly easy pickings, either. For all the talk of innovative services, wealth managers will recognise their principal competition remains a cohort that increasingly forms part of their own client base: financial advisers.