Welcome to Asset Allocator, FT Specialist's newsletter for wealth managers, fund selectors and DFMs.
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Half-year performance figures are almost in, and the damage could have been a lot worse for wealth managers. Risk assets have had a barrage of bad news to contend with in 2020, but the Q2 rebound has put a gloss on things for fund buyers. As of today, one third of the UK funds universe is in the black year to date.
It’s a sign of the times that this represents a good outcome, given the rather unpalatable state of affairs encountered at the end of March. But there are plenty still licking their wounds – and some of the most popular areas have suffered the most.
While specialist strategies like tech and gold funds have prospered, some sectors where DFMs tend to concentrate holdings – UK equities in particular – are still firmly in the red. The former hasn't been enough to offset the latter, thus far at least.
The question, then, is how do discretionaries position for the rest of the year. Their interest in credit is underlined by the fact that corporate bonds’ Q2 rally has been modest in comparison to equities’. And while the average high-yield strategy has bounced 11 per cent this quarter, such funds are still down more than 5 per cent year to date.
In equities themselves, tech and smaller companies have dominated during the rally. Dividend stocks have continued to lag - even those with a global slant. The global income sector is the fifth-worst performer this year.
Elsewhere, however, wealth firms’ preference for quality is paying off. European equity funds have pretty much matched US counterparts during the rally, despite their much lower tech allocations, and despite European indices failing to do likewise when compared with US benchmarks. Much of this has to do with active funds’ ability to avoid the financials that have given European investors a rollercoaster ride again this year. That’s been a boon for DFMs - and tomorrow we’ll take a closer look at how their holdings have performed in 2020 across the investment spectrum.
Close but no cigar
As one door opens, another closes: yesterday’s news that Stewart Investors is to reopen its Gem Leaders fund has been followed by Polar Capital's decision to soft-close its Global Tech strategy. That may be disappointing to some discretionaries. Existing investors are safe from the measures, but DFMs’ recent shift in favour of specialist equity exposure would imply some are only now adding the fund to their portfolios.
At the same time, there's evidence elsewhere that selectors are now doubling down on their favoured portfolios across a number of sectors. Could that spark a renewed wave of soft-closures across the industry? Don’t count on it.
Firstly, genuine soft-closures have always been less frequent than they might seem. A combination of commercial incentives and a willingness to prioritise certain buyers – and the flexibility that these factors imply – means many settle for dialling back on marketing rather than putting up the shutters.
Data from Morningstar, in fact, shows just one UK-domiciled fund – Downing UK Micro-Cap Growth - has been officially closed to new investors in the past four years. It’s a similar story for strategies domiciled in Luxembourg and Ireland: only 20 have been closed over the same period. Subtract those that are unavailable or of little interest to UK investors, and this figure falls by more than two thirds.
It’s true that asset managers can take a firm stance without officially soft-closing a fund: there are those strategies that are ostensibly open but which DFMs now struggle to add to their portfolios. In general, however, pragmatism's the order of the day. More soft closures will continue to trickle in over the coming months, but discretionaries won’t be too concerned about the overall impact on their portfolios.
A changing of the guard at Standard Life Aberdeen: first Bambos Hambi and now Keith Skeoch are leaving the firm. The duo’s departure draws a line under the transformation of Standard Life into a business defined by its asset management capabilities.
Mr Skeoch oversaw that transition, capped off by its merger with Aberdeen, while the MyFolio multi-asset range has proven a notable success at a time when the firm’s other flagship, Gars, has seen money head out the door.
Mr Hambi was the figurehead for MyFolio, but the sheer number of strategies that make up the range means he was far from alone when it comes to the day-to-day. That should ensure outflows aren’t too severe. DFMs keen for another piece of the multi-asset pie might hope otherwise, but it will take more than a couple of departures for sizeable sums of money to start heading their way.