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Are DFMs any different to other professional investors? The latest data from our asset allocation database suggests not. Discretionaries, like their peers, were pretty wary of April’s serene market conditions – content for portfolios to tick higher, but reluctant to buy in any further.
The chart below, showing some of the most significant asset class activity on the month, excludes equities for one simple reason: the number of wealth managers who made changes to their equity exposures in April was almost zero. Discretionaries have never been particularly short-term in their approach, but this level of inactivity is virtually unheard of.
Interest was a little more forthright in the fixed income arena. As we’ve noted on a couple of occasions in recent weeks, the credit dislocations seen in March were enough to interest some buyers. That trend continued in April, as the chart shows:
While investment grade and, to a lesser extent, high yield bond funds were a beneficiary of this shift, safer government debt portfolios started to lose favour. But again, there was little sign of an improvement in risk appetite elsewhere. Alternative positions were largely untouched, and while cash weightings did fall from the elevated levels seen at the end of March, an average holding of 6.9 per cent is still well above historic averages.
Those who did deploy their reserves largely opted to buy credit. But the overriding mood of caution is emphasised by the sizeable proportion who clung on to their cash piles. Almost 30 per cent of DFMs held the same amount of cash at the end of April as they did at the start - and 14 per cent increased their liquid asset exposure.
Ongoing dividend cuts mean decumulation portfolios are facing their first real challenge since pension freedoms ushered in a new age of retirement saving in 2015.
The need to produce a sustainable income has been at the forefront of investors’ minds for many years now – but in truth, it’s not proven that difficult thus far.
Rising dividends have done much of the legwork, and drawdowns, Q1 2020 included, haven’t been too calamitous for balanced portfolios. That’s perhaps why few discretionaries have felt the need to innovate with their retirement strategies: bespoke or IHT strategies have fit the bill for most clients.
That said, there's one product in particular that advisers and their at-retirement clients have flocked to since the pension freedoms and pension transfer boom began, and it’s not one run by wealth managers.
The PruFund, with its “smoothing” of returns and slightly different spin on the with-profits structure of old, has captured billions in assets over the past half decade. For many advisers, it feels like a pain-free solution to the tricky task of managing money in retirement. And today it became even more attractive, courtesy of M&G’s deal for the Ascentric platform.
That deal ramp ups the distribution potential for PruFund – and make it an even more formidable competitor for discretionaries. Wealth managers will believe they are better equipped to navigate tricky markets than what they see as their more rudimentary rivals. The difficult part will be convincing customers to think likewise.
News from Japan, where housebound office workers are seemingly taking up personal investing en masse. Half a million new account openings in both March and April, according to initial estimates – more than double the usual rates.
As the FT notes, this impulse would seem to reverse a longstanding trend of domestic investors being net sellers of equities. But wealth managers might be less interested in looking for clues into Japan’s economic fortunes than they are in the possibility of this trend translating to the UK.
On these shores, interest in investing remains structurally lower than in the US. But there are anecdotal signs that March’s market falls and the change in working patterns have boosted attention here, too. Converting that into a new wave of serious investors is the real target for those in retail financial services.