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DFMs' biggest sells of the year, part 2; How wealth managers trip up on transparency

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Sellouts

When we last checked in on wealth managers’ biggest buys and sells of the past 12 months, the names in the spotlight were something of a mish-mash. Some big portfolios had suffered particular falls from grace, but there were plenty of veterans to whom DFMs were still turning in their droves. There were also notable signs of activity among a select band of less-heralded asset classes and fund firms.

This time around, we’ve focused in a little more closely. Manager departures have been excluded from our analysis: though fund groups’ succession planning measures have improved, it’s still no surprise when a high-profile exit prompts wealth firms to follow suit.

That leaves a poor performer as the biggest casualty of discretionaries' portfolio turnover decisions in 2019 thus far. Once again, the absolute return space is home to the most notable retreat: almost one in two DFMs who were holding Merian GEAR have sold out this year.

Some of those producing respectable returns have seen sentiment shift, too: Fidelity Emerging Markets has had a good 2019 but more than one discretionary has jumped ship. In the bond space, Gam Star Credit Opportunities is another that has begun to rally recently - but that rebound has come too late for some DFMs.

What of the funds on advisers' shopping lists? One portfolio starting to come onto more wealth managers' radars is BlackRock Emerging Markets, which has outperformed on the upside and downside of late and been added to buylists as a result. Aside from that, however, there's little sign - for once - of DFMs coalescing around the same choices. A lack of consensus on where to invest next is evident in fund selection as well as asset allocation at the moment. Many will say that's no bad thing.

Disclosure disappointments

For all the progress that’s been made over the past few years, it’s still far from clear that the industry really is entering a new era of Mifid II-induced transparency on costs and charges. And wealth managers are at least as culpable as anyone else in the investment chain.

There’s no denying that improvements are still being made. Earlier this month Hawksmoor shifted to one of the more comprehensive disclosure methods yet implemented: the ‘OCF plus’. Incorporating transaction costs as well as fund performance fees, this new figure makes clear that actual model portfolio charges are 20 to 50 basis points higher than they previous appeared.

While that’s a laudable move and one that, if copied, may make allocators look again at turnover costs and the existence of performance fees in general, there’s still a fundamental problem here for the sector. As ever, these changes are being made by different firms at different times. And piecemeal solutions are no good for those looking to compare and contrast services.

To illustrate that point, we examined model portfolio disclosures for the 20 largest DFMs in the UK market. Of this group, only a third explicitly made mention of transaction costs. Several were unclear as to whether transaction costs were accounted for or otherwise.

Even if they are disclosed, many of these charges still aren’t particularly visible: a quarter of wealth managers included no charging information on their factsheets. There are more egregious oversights, too. One DFM’s charging schedule included no mention of the underlying fund costs at all.

Allocators can rightly make the case for investing in more expensive products when the situation calls for it. But it’s harder to do so if the overall picture of the industry is still one that has a careless approach to transparency issues.

Helping hand

Former Henderson manager Glen Finegan has become the latest fund manager to go it alone, following in the footsteps of ex-Cazenove/Schroders pair Paul Marriage and John Warren by setting up under the oversight of the BennBridge multi-boutique business. 

The prospective opportunity for Mr Finegan's new business, Skerryvore, is apparent by the number of DFMs who have exited his Henderson EM Opps fund in the months since his team's departure was announced. But regathering that money is often a challenge akin to putting spilled sugar back in the bowl. Much of that cash will already be lost to its former overseer.

Nonetheless, the multi-boutique model looks a wise bet at a time when start-ups' governance and risk functions will be subject to serious scrutiny from fund buyers. Nowadays, those who seek a helping hand are more likely to be rewarded than those who insist on doing everything themselves.

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