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Wealth portfolios buck the global equity slump; The rise of the 'repurposed' fund

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World leaders

Research from Quilter has highlighted active global equity funds’ deficiencies: fewer than one in three have managed to beat the index over five years, and less than half have done so over three years.

Part of the issue here is those much-discussed US weightings – US equities now account for more than 60 per cent of global indices, and Quilter thinks many managers still feel obliged to take a more diverse approach, given their global remit. That's meant the runaway gains seen across the Atlantic haven’t always been replicated by active global portfolios.  

Wealth managers’ own top picks, however, tell a different story. Our fund selection database shows that, of all the global funds held in more than one DFM model portfolio range, just two have failed to beat their benchmark over three or five years – JOHCM Global Opps and Lazard Global Franchise. As with the European equity funds we discussed yesterday, DFMs have generally done a good job of picking the winners in the global equity space.

Some of those leading lights are obvious – Fundsmith Equity, Scottish Mortgage, Lindsell Train. But the less heralded selections, like Artemis Global Select, have delivered, too.

The same applies if the ‘global’ category is broadened out to include the theme that’s been driving markets worldwide for some time now. Every specialist tech fund chosen by DFMs is also ahead of its sector average over both three and five years.

The interest in thematic – and sustainable – investing means global plays are likely to form a larger part of portfolios in future, as Quilter notes. Poor performance statistics like those mentioned above are unlikely to derail that trend – and wealth portfolios have little to worry about on this front in any case.

Green light

For an update on how that sustainable shift is going, look to Morningstar data released this morning. Sustainable fund flows across Europe stood at $120bn in the final quarter of last year, up 84 per cent on the third quarter alone.

Part of this is seasonal – July and August are never going to be the best months for flows – and part is due to other trends, chiefly the surge in investor interest that accompanied the US election result and vaccine developments. All the same, ESG flows in Europe for 2020 as a whole were almost double those of the previous year.

None of that will be a particular surprise to those reading this newsletter. Other figures are more notable: passive sustainable funds are still managing to grow their market share amid this boom, and now account for 22.5 per cent of the market, up from 18 per cent three years ago.

One area where passives dropped off last year was in terms of new launches: just 16 ETFs and index funds were launched in the fourth quarter, a slowdown compared with previous periods. By contrast, active sustainable launches totalled 147 – the highest rate of all time.

But most significant of all for fund selectors is evidence of what looks like a concerted greenwashing trend. Morningstar identified more than 250 funds that were “repurposed” as ESG vehicles last year, 87 per cent of which rebranded in the process.

Some of these funds will have changed their investment processes as a result – but the odds are that others have done little more than add a line or two to their marketing materials. Needless to say, this practice will represent a continued test of selectors’ nous in the months and years ahead.

Automated exit

The robo advice retreat continues this week – in the UK, at least. Scalable Capital is to shut its UK direct-to-consumer business and will instead focus on its European pursuits. It follows the likes of Investec, UBS and Moola in retreating from the UK D2C market.

Admittedly Scalable, which is backed by BlackRock, will still have an indirect presence in the UK retail space: it's working with Barclays on the latter’s Plan & Invest digital service that launched last year.

Plan & Invest has a minimum investment of £5,000; Scalable’s own minimum stood at £10,000 in the UK – both of which are considerably higher than those demanded by high profile rivals like Nutmeg. But whatever such requirements, the lesson is seemingly the same for UK robos: customer acquisition is an arduous task, and even players with deep pockets are facing an increasingly uncertain time of it.

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