Asset AllocatorFeb 11 2021

Dramatic times prompt jump in DFM fund turnover; The no-go areas for passives

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Welcome to Asset Allocator, FT Specialist's newsletter for wealth managers, fund selectors and DFMs.

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Bye or hold

In a year that’s so far been characterised by rapid trading activity, the attitudes of professional investors like wealth managers look more distinct than ever. DFMs are fleet of foot when they want to be, but in the main they tend to be buy and hold advocates – particularly where collectives are concerned.

Last year, clearly, tested the mettle of even the most committed fund buyer. A pandemic was not a scenario factored in to fund selection models. While successful vaccine trials were at least a known unknown, they too nonetheless prompted a new period of reconsideration.

To examine how this has been reflected in portfolio turnover, we’ve turned again to our fund selection database, and compared 2020 buys and sells with those seen in 2019. We start today by looking at bond fund picks.

For context, 2019 did have some drama of its own. While all things seemingly pale in comparison to the past 12 months, investors did encounter some surprises back then as well - chief among them the sudden change of course at the Federal Reserve.

And while bond markets didn’t exactly have a smooth time of it last year – credit in particular saw a sharp sell off and rapid rebound – fixed income funds were less affected by the talk of market rotation seen in Q4.

Nonetheless, our analysis shows there was a notable uptick in turnover in 2020. The average DFM either introduced or divested 3.9 bond funds from their model portfolio ranges last year, compared with an average of 2.6 last year. The shift is even more stark when looking at the median number of changes: 3.5 compared with two in 2019.

Most firms stuck pretty closely to these averages, but there are always outliers. Some did feel comfortable enough to stick with their knitting: 18 per cent of our sample made no changes in 2019, and 11 per cent made no alterations last year. The buy and hold mentality was still pretty strong when it came to bonds – next week we’ll examine how equity holdings fared under the glare of market volatility.

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