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Asset Allocator

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DFMs’ biggest fund buys of the year; Allocators await the moment of maximum bullishness

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Chart toppers

Wealth managers need little reminder of the big investment themes of 2020: many, many words have already been written about both tech and ESG this year. But the way in which DFMs’ own fund holdings have changed doesn’t map quite so neatly onto this backdrop.

That’s partly because there have been many other investment stories playing out at the same time as the above - the rush to credit and the rotation of equity income names to name but two.

So we’ve looked at our fund selection database to identify the funds attracting the most new interest in the first 10 months of 2020.

The most popular fund of the year, by this metric, is a slight surprise. The launch of Artemis Corporate Bond in Q4 2019 proved good timing for many wealth managers looking to up their credit exposure this Spring – the experience of Stephen Snowden and team meaning the fund’s short track record was no barrier.

The newness of the fund itself was also helpful: our list doesn’t account for discretionaries upping positions in strategies that they already hold. That said, there is only one other relatively new launch in the top five, and it’s in a pretty unloved sector. Tellworth may have failed to get their investment trust off the ground, but their UK Smaller Companies offering did prove popular with fund buyers.

Morgan Stanley Global Brands is another winner that may surprise some selectors. The quality theme has been riding high for several years already, and the strategy has long offered an alternative to Fundsmith Equity. But new buyers have arrived in 2020.

The two others in the top five are those that benefitted from problems with other equity income offerings: Fidelity Global Dividend and Franklin UK Income became the go-to alternatives for a number of buyers.

This list means no place for either tech or ESG names – though there are two ESG funds sitting in the top 10. We’ll discuss those other strategies in more detail, as well as revealing the biggest sells of the year, in the coming days.

Full bull

Another burst of Monday morning Covid-19 news has produced the diminishing returns we spoke about last week. Whether that’s down to investors having already priced in the arrival of vaccines, or the way in which the latest shot’s efficacy is being reported, is another question.

AstraZeneca’s offering does have a lower average efficiency rate than the Pfizer and Moderna offerings, but its cheaper cost and ease of storage are particular positives. One investor told the FT that today’s news was “more important for markets” as a result.

Most investors seemingly don’t agree. Indices have risen by between 0.5 and 1 per cent; AstraZeneca itself is down 2 per cent. Airlines have again been given a lift, but a 5 per cent boost for the likes of IAG is much smaller than the bumps seen in recent weeks.

That gives credence to the theory that the “full bull” discussed last week is almost here or has already arrived. It’s not just Bank of America that thinks so: Goldman Sachs’ sentiment indicator points to the most stretched levels of positioning since last September, while Deutsche Bank’s own measure of risk appetite is close to its historic highs.

BofA, in fairness, does think there’s still some way for the current rally to run. And wealth managers themselves will point to the fact that the vaccine rallies mean a rotation to unloved stocks – many of which may well have the potential to grind higher as the recover takes hold. The bearish case is that the rising scale of the pandemic in the US in particular means investors will soon turn their attention back to the decidedly shaky short-term economic outlook. It’s a hard one for allocators to call at the moment.

Standard deviation

The rush to all things ESG includes those who have tasked themselves with setting ESG standards. European rules are rolling out next year – but the UK is already going down a slightly different path. The US has rejected such calls entirely, but that’s likely to change after the inauguration in January. And other bodies are making their own moves in the meantime: the CFA Institute has defended its own plans, saying it has a duty to help investors beyond the US and Europe.

That’s an understandable response, but the idea of a global framework looks further away than it ever did. Fragmented outcomes are seemingly unavoidable at this point.

That might chime ironically with those already used to creating bespoke portfolios for particular client needs. From a corporate point of view, however, incorporating all these differing standards at a business level is likely to prove increasingly challenging.

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