Wish lists 

Fund buy lists have been in the news all summer, but the relevant acronym for those taking an interest has been D2C, not DFM. Scrutiny of direct-to-consumer platforms has been ramped up, and discretionaries have been content to avoid the spotlight in the meantime.

Behind the scenes, the evidence is that most wealth managers don't think there's much cause for alarm. Money Management’s latest annual DFM survey shows wealth firms continue to differ widely when it comes to the size of their own recommended fund lists – from a concise 21 names to those that run into the hundreds. But few are planning further overhauls at this point.

When asked about how they saw buy lists developing in the next year or so, respondents to the survey were largely content with their current offerings:

That said, there’s movement at the margin. A fifth of respondents expected their buy lists to shrink, with 16 per cent anticipating the opposite.

Why change? For those expecting to run a smaller list, it’s often down to a desire for greater conviction: many of these respondents cited the need for a greater focus on best ideas, or at least a wish to consolidate exposures. In a theme we’ve touched on before, others want to more easily monitor funds and manage risk.

Those who instead see themselves scaling up are focused on expansion, meaning new business at home or overseas. And in a time when traditional asset valuations look stretched, others still want to accommodate the inclusion of more alternatives.

Issuance issues

Not for the first time, the big event in financial markets this week has to do with Mario Draghi: the hopes are that the outgoing ECB president will revive quantitative easing in a big way.

Many European bond yields have been in negative territory for some time now - a trend that reflects well on higher-yielding parts of the market. And with August now fading into the rear-view mirror, the relative attraction of corporate debt has been met by a supply glut. 

While Mr Draghi may take the headlines on Thursday, it’s these parts of the market that will continue to attract real investor interest this month. 

Last week saw a record level of US investment grade bond sales, in terms of both dollar value and number of deals. And this supply isn’t as damaging as it might have been: Bank of America Merrill Lynch says much of this new money have been used to pay down debt rather than increasing leverage.

That’s of a piece with wider trends, too. The worries about BBB-rated debt downgrades have failed to materialise so far this year. TwentyFour Asset Management notes that European corporate bond issuers have enjoyed 21 upgrades to investment grade level this year, compared with just six downgrades. In the US, the ratio is 20 to 12, and in the UK it’s four to zero.

But this doesn’t mean safety is guaranteed. The surge in issuance is expected to continue in the coming weeks, and that could ultimately test demand levels to their limits. TwentyFour says the risk of wider spreads has increased due to September’s supply levels. Baml’s time horizon is more elongated, but it thinks the surge in supply could prove “a key factor in a 2020 big top in stocks and big low in bond yields”.

Tax turning point

Another week, another proposal for tax reform that, if enacted, would have a significant impact on wealth managers.

Today the Institute for Public Policy Research has called for capital gains to be taxed at the same rate as income as part of a package of measures to address the UK’s “outdated tax system”. 

As organisations go, the IPPR has far less of a chance of gaining the government’s ear than the Office for Tax Simplification, which fired a warning shot over the tax treatment of Aim portfolios this summer. 

Yet its thinking may prove more pertinent should there be a general election. Come what may, it’s striking - and perhaps inevitable, given UK policy over the past decade - that tax rises of this kind are starting to be discussed as frequently as tax cuts.