Tracked changes

Statistics often tell a story, but that narrative isn’t always what you might expect. Sometimes data can contradict received wisdom - and sometimes it’s telling a different tale entirely. Look at 2019 fund flow figures, and there’s plenty going on that isn’t captured by the year’s headline events.

With numbers now in for 11 of the 12 months of the year, the list of winners is populated by some unusual names. Remove the funds whose flows have been deceptively bolstered by internal transfers or by opening up to pensions money, and topping the retail list for 2019 are two trackers: Aberdeen Standard Investments’ Global Corporate Bond Tracker product, and Vanguard FTSE UK All Share Index, each taking in a net £1.5bn.

Neither will turn heads in a crowd. But both emphasise how selectors are increasingly reliant on passives in core asset classes. And UK equity exposures remain the single biggest allocation in a typical portfolio - so when money comes in, more of it goes to domestic shares than anywhere else. For all the talk of underweight positions, home bias remains alive and well among retail investors, wealth managers and everyone else in the investment chain.

Outside of these two funds, it remains a case of tracker dominance. iShares also has corporate bond and UK equity offerings in the upper echelons of the list - but both have been beaten by its EM tracker, which took in a net £840m between January and November. Away from trackers and UK equities, the big winner has been Investec Diversified Income. Inflows have remained steady all year, and have now topped £600m with one month to go.

At the other end of the scale, the year’s biggest losers need little further discussion at this point: an estimated £7bn in outflows from Gars putting it bottom of the pile, closely followed by Merian GEAR’s £6.5bn in withdrawals. 

But looks can be deceptive at this end of the spectrum, too: Artemis Income, which itself seemingly ranks near the bottom of the list, has seen estimated outflows artificially increased by a large client switching from the open-ended product to a segregated mandate. At the very start of this year we highlighted how shifts of this kind are starting to make it harder for fund selectors to work out where money is really going. Those challenges remain front and centre as the decade draws to a close.

New tricks

One area where fundraising has been buoyant this year is in the investment trust space. Trusts’ reputation has benefited from the series of liquidity issues to have affected their open-ended counterparts - but the drivers of the increased interest remain only tangentially related to these problems. It is, as ever, allocators’ quest for alternative asset exposure - and alternative income sources - that have seen them turn to closed-ended strategies again in 2019.

But even in this part of the investment universe, appetite for something different isn’t boundless. In keeping with trends seen in other classes, selectors are largely content to stick with what they know at this point in the cycle. 

In this context, appetite has been voracious. A record £6.9bn in fundraising by existing investment companies took place this year, according to the AIC. That’s up from £4.8bn last year and £6.3bn in 2017, and has again been driven by appetite for infrastructure, renewables, or both. 

Yet new offerings have been relatively sparse. New issues raised just under £1.4bn in 2019, compared with £3bn last year. 

Trust boards are also having to think hard about how they preserve investor interests. The jettisoning of Mark Barnett last week was one example of boards taking a harder line than they once did. But there’s also the odd indication or two that pressure is also being put on fees - and not necessarily in the way observers might expect. 

Whereas once it was overall fee cuts that stood out, nowadays it’s a shift to tiered fee structures. Just six trusts made this move in 2019, per AIC data. But the proportion of all trusts that use this approach now stands at 39 per cent, up from 18 per cent two years ago. Innovation in the coming months and years stems not from new launches, but via a continued rethink of how closed-ended offerings structure their fees and monitor their managers.

Back so soon?

In what would be a rather rapid comeback (of sorts), Neil Woodford is in China sounding out investors about a new venture. Comparisons with Anthony Bolton might instinctively spring to mind - though it should be noted that Mr Bolton’s reputation remained intact when he began his foray abroad. 

For what it’s worth, Woodford IM’s intentions appear to still be fixed on the early-stage businesses that helped prompt his downfall. His goal is to find a different kind of investor willing to back that strategy. The more appropriate analogy, then, might be a Premier League footballer seeking one last payday away from the media limelight. 

Many of those footballers do end up coming back to European football rather than simply retiring off their excess wages. Mr Woodford will want to prove he has what it takes to do so, too. But there seems little chance that any fund selector, retail or professional, would look to reacquaint themselves with his unquoted asset strategy.