DFMs left behind by the equity market's big winner; Trust buyers call the bottom for UK shares
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A break in the clouds
Amid all the focus on old economy versus new economy, growth versus value, and stock market rotations in general, wealth managers may have overlooked the market winner of recent weeks.
To the surprise of some – doubtless including those who have dialled down allocations again of late – it’s Japan that’s beaten all comers over the past three months. In sterling terms, the MSCI Japan is comfortably ahead of the S&P 500 and even the Nasdaq over that period, returning almost 8 per cent.
That rally’s been given another leg up this week, courtesy of renewed interest in how Asian economies might prosper in a vaccine-led recovery, as well as a slightly weaker yen. But the trend was already evident prior to the latest fillip.
The catalysts for this move are a little different to those seen in the past: investors have speculated that the latest rise is being driven by the long-awaited return of domestic investors rather than overseas buyers.
That corresponds with our own research showing UK fund managers were more sceptical than ever on the merits of the Japanese market at the start of Q3.
DFMs face a more specific problem. The latest rally hasn’t been captured particularly well by their favourite active funds in the region. Baillie Gifford Japanese has outperformed indices, but the likes of Man GLG Japan CoreAlpha and Lindsell Train Japanese Equity are among the biggest laggards. There are even signs that Legg Mason Japan Equity’s successful exploitation of the small-cap rally may have run its course for now. Japan may now be a land of rising returns, but it’s still proving a puzzle for many wealth portfolios.
Underdog
If the three months mentioned above constitute a relatively short-term time horizon; a three-day period barely merits mention at all.
But this has been no ordinary week for allocators, and there’s no denying another unloved equity market – the UK – has had a better time of it.
The Pfizer-fuelled rally has cooled today as prior trends regain some of their poise. But the prospect of a real recovery in 2021 has had many analysts looking again. Deutsche Bank was among those that on Monday singled out the UK as a particular beneficiary, economically, of a successful vaccine rollout. The composition of the FTSE 100 also lends itself to developments of this nature.
There have been green shoots in the investment trust world, too. BlackRock Throgmorton trust has been an outlier in the UK universe – it was one of very few UK equity trusts to be trading on a premium to NAV as of the start of this week. But the trust’s board has waited until now to say that they are considering an equity placing.
Other UK equity vehicles, like Mercantile IT, have also enjoyed more interest from investors in recent weeks: another sign, perhaps, that UK equity appetite is starting to return in some quarters.
Starting from scratch is much more difficult, as wealth managers will have observed from the twin failures to launch of recent weeks. But Schroders said on Tuesday it was pressing ahead with its own British Opportunities IPO. That £250m fundraising is far from guaranteed, but the attempt is more evidence that UK equity investor optimism is on the up for now.
That won't wash
Sanlam’s announcement that it will partner with Robeco on ESG reporting and engagement services is another example of how ESG is prompting closer collaboration between wealth and asset managers. And getting those standards right is crucial to both sectors' future success – not least because the regulator is starting to look more closely at practices like greenwashing.
Earlier this week, the FCA said that the EU’s regulation of sustainable finance disclosures would not apply to UK managers. But it isn’t resting on its laurels. As Ignites Europe points out, the UK regulator’s director of strategy told delegates at a Good Money Week event last month that it is concerned that products using words like “green, ESG, impact, climate” in their names or objectives are creating misleading impressions for investors. Better policing of these efforts looks set to be a feature of the FCA’s approach to the retail investment industry in 2021.
