Retail rallies give wealth firms little pause for thought; An orderly return for DFM portfolios
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Red herring
Are the Reddit rallies anything more than an intriguing diversion for DFMs? A new salvo has been fired this week via a leap in the price of silver, but the price action remains outside of most wealth managers' purview.
Yes, silver prices have hit an eight-year high. Yet a rise of around 11 per cent yesterday, coupled with a 6 per cent increase last week, isn’t really of consequence for UK wealth managers. In most cases, of course, their precious metal interests tend to focus on gold, which had a pretty dismal January despite recent renewed interest.
So as with GameStop, this isn’t an area in which fund buyers are particularly involved. It’s little surprise, then, that the likes of Henderson’s multi-asset team don’t consider the recent furore to have “broader or enduring market significance”.
The team also see the moves as “a US story rather than a global one”, though as we noted last week there were some spillover effects, and hedge fund deleveraging did seemingly have an impact on equity markets as a whole.
At the same time, a retail investment shift of sorts is evidently taking hold on these shores. Hargreaves Lansdown yesterday morning echoed AJ Bell in reporting a surge in new customer numbers: 84,000 sign ups in H2 2020 compared with 50,000 the year before. The average age of those clients has been dropping, and now stands at 37. But the most pertinent fact of all is arguably the increase in brokerage volumes, which rose 123 per cent over the period.
This is the real difference between wealth managers and the market entertainment of the day. Be it retail investors, hedge funds, or others trying to capitalise on the trend, this is fast money at play. Fund buyers may get swept up in the commotion in future, but for now they'll be happy to raise an eyebrow or two from the sidelines.
Back to normal?
For confirmation that things are altogether more orderly in the world of wealth, look to private client portfolio figures for the first month of 2021.
The year didn’t get off to a great start, on the whole – emerging markets aside, equity indices were flat at best. Add in some dollar weakness against the pound, and benchmarks dipped into the red for sterling-based holders. Bonds of all stripes fared little better.
But wealth portfolios did at least perform as you’d expect during this particular mini-malaise. Data from Pimfa shows that its conservative benchmark protected money most effectively, shedding 0.73 per cent on the month, while the global growth offering fared worst with a loss of 1.16 per cent – in part due to its greater exposure to those currency moves.
It’s a similar story at Arc, where private client indices fell in tandem with the amount of risk they take.
These aren’t figures to get anyone particularly excited. But their orderly pattern will prove a relief to some after a rather unusual 2020. We discussed the inconsistent returns of those Pimfa benchmarks on a couple of occasions last year: the global growth index regularly outperformed on the downside, and ultimately posted a double digit calendar year return despite no other index making it past 3 per cent.
What’s more, the next best offering was the conservative benchmark, which gained 2.97 per cent in 2020. Ultimately, clients would have been happy to see any portfolios in the black over such a dramatic period. That wasn’t the case last month – but at least the risk/reward spectrum looks a little more straightforward so far this year.
Lacking value
The dust has now settled on the first year of fund firms’ assessments of value. And while there have been plenty of firms using the opportunity to cut fees, not all practices have been up to scratch.
That’s the view of the CFA Society, whose own assessment of those, er, assessments has found numerous failings. For starters, many such reports are either hidden away or impossible to find, emphasising the extent to which asset managers view the reports as a regulatory obligation rather than a useful document for customers.
But some are struggling even on this front: a quarter failed to even describe a fund’s investment objective, despite this being explicitly required by the FCA. And some old practices die hard: 42 per cent failed to state ongoing charges figures. These issues won’t be particularly pressing for fund buyers. The regulator, however, has already indicated it may start clamping down when round two begins.
