A quick announcement: Asset Allocator will be holding a webinar for wealth managers, asking whether DFMs' ESG allocations are fit for purpose, on December 9.
To find out more and to sign up, click here.
When it comes to selling out of a fund, motivations usually boil down to two simple reasons: a manager move or a period of underperformance.
There are other catalysts, of course - from asset allocation changes to concerns over a strategy’s size or structure – but these remain the two biggest factors. That’s certainly the case when it comes to DFMs’ biggest sells of the year. Increasingly, however, some may be wondering if they were a little too hasty.
The three least popular funds - again ranked by the number of selectors who have sold out this year - need little further elaboration. Two sit in the global income sector – former favourites from Artemis and BNY Mellon have caused problems for holders in recent months. The other, Jupiter Absolute Return, also proved a disappointment at a time when investors were looking for diversification.
Elsewhere things are a little more nuanced. In the UK, the reshuffling of growth and income names has been widespread, rather than centring on a small handful of casualties. The exception to that is Ninety One Special Situations, which had to deal with both performance problems and Alastair Mundy’s leave of absence.
Other popular candidates for removal include Man GLG Japan CoreAlpha and BMO Property Growth & Income – a fund that was less shielded from the risks inherent in open-ended property funds than some had hoped.
One common theme is selectors deciding they’d stayed the course long enough, and simply giving up on value or cyclical offerings. And yet many of these disposals have started to surge of late. The Ninety One fund is up 25 per cent in the past two weeks – though it would have been a brave buyer who kept faith given the twin hurdles of slumping returns and a manager change. Two of the other biggest sells, R&M Global Recovery and JPM Natural Resources, have also bounced markedly.
These could be more false dawns, and timing the market is never an achievable goal in any case. But in a year’s time, one or two discretionaries might be wishing they’d held on just a little longer.
Whether or not the current rotation does endure, it’s a reminder that current themes aren’t guaranteed to persist indefinitely – ESG included.
The argument that sustainable investing represents a structural rather than a cyclical shift is a compelling one, but if resources do start to rally as part of an economic recovery, that will challenge ESG strategies’ ability to outperform. The FT makes a similar point this morning.
The investment industry’s push towards all things sustainable will continue either way. Yesterday we discussed prospective fund launches; many more vehicles will continue to rebrand or rebadge themselves to fall into line with this particular new normal.
In institutional circles, it’s clear demand has been there for some time. There have long been doubts over retail investors’ own interest, but the surge in supply is just one piece of evidence implying that’s now changed. For DFMs, not all statistics are as clear-cut.
Tatton Asset Management has established itself as one of the top providers of on-platform model portfolios, and had raked in £7.8bn in total assets as of the start of October.
But look at its multi-asset portfolios and there’s not much sign yet of a leap in interest for its Ethical offerings. Asset growth stood at 1 per cent in the six months to September 30, and 1.8 per cent in the 12 months to June 30 – below that seen for its active/passive blended models.
There are several caveats here: this is just one provider, others are better known for their ESG abilities, and most DFMs would say their strategies are about positioning for future years as much as immediate inflows. But it’s a reminder that ESG isn’t necessarily a simple answer to the industry’s quest for growth.
Today’s Spending Review has left the government’s most difficult decisions for another day – rightly so, given its focus during the current crisis should remain on supporting the economy. There’s more to do on that front. But in the medium term, attention will turn to what might happen next year. Tax rises are on the agenda: the regular speculation about pensions tax relief may be more warranted this time around, and capital gains tax is also in the Treasury’s sights.
With income tax rises arguably not in play, the likelihood is that the changes that do arise will be of particular relevance to wealth managers. The latter part of 2021 will hopefully be about economic recovery, but it might also be about navigating some fundamental changes to the way in which investments are taxed.