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Asset Allocator

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MPS ranges show resilience as sell-off takes hold; ESG stats contest received wisdom

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Where credit's due

Investors’ belief in economic recovery is continuing to cause problems for a variety of asset classes. Increasingly, the pain is most visible in the growthier parts of equity markets.

As a result, tech strategies have already had quite the round trip in 2021: the typical tech fund was 10 per cent higher for the year in mid-February, but is in the red over that period as of today. China strategies were up more than 15 per cent, but have completed the same round trip.

The key delineator here is size. Chinese equity funds are still a very small part of DFM portfolios. The same can’t be said for tech-focused US strategies, whose struggles will have a material impact on some wealth portfolios.

All the same, US shares more broadly have proven relatively resilient. The average US equity fund has returned 0.4 per cent this year, with a drawdown of less than five percentage points. In the bond market, too, things aren’t as panicky as price action in government bonds may make things seem.

Because while gilt funds have taken a hefty whack in 2021, credit – which forms the bulk of most DFMs' bond exposure - continues to hold up pretty well. The average sterling corporate bond fund has shed almost 3 per cent, but most of that damage was done prior to the spike in rates seen over the past fortnight. And the high-yield sector’s performance chart for the year is more like something you’d see from a market neutral fund. Volatility, or anything resembling a drawdown, simply isn’t in evidence here.

Why so relaxed? IG credit has been flagged as being at risk from the sovereign bond yield spike, but the truth is that spreads just haven’t widened materially as of yet. The combination of improving economies, central bank support and corporate strength have given succour to credit investors in the developed world. That resilience will be giving solace to wealth managers, too.

Nitty gritty

New data released by the Investment Association makes it possible to examine the boom in responsible investing in a little more detail.

That’s a timely arrival, because a degree of fatigue with headline statistics must be setting in at this point. It’s impressive that the amount of money held in such strategies has jumped 66 per cent over the past year, to £56bn. But datapoints like this now tell selectors little they didn’t already know.

What’s more interesting is where exactly this money is going. Figures published by the IA last Thursday show 60 per cent is held in equity funds, with 20 per cent in bond strategies and 20 per cent in multi-asset funds.

That pattern remains the same even when looking at short-term flows – in January, bond fund sales accounted for 15 per cent of responsible inflows, with equity and multi-asset sales sticking to the long-term averages mentioned above.

For bonds, this 20 per cent figure is also in line with the make-up of the wider fund management market – fixed income funds similarly account for a fifth of industry AUM. That suggests the perception that sustainable investing has yet to take off in the asset class is slightly misplaced.

There’s one other preconception that might require some correction, too. Some fund firms talk about negative screening as a thing of the past; there’s no doubt parts of the industry are keen to broaden out the concept of ESG beyond this metric. But the IA’s stats show some 72 per cent of responsible funds still exclude certain types of investments, and almost half combine exclusions with an emphasis on sustainable investing. The latter hasn’t displaced the former quite yet, and may not do so for some time to come.

Decline of the Daves

An update on one of the industry’s more depressing data points to mark International Women’s Day: there are still more funds run by men named Dave than there are female fund managers, according to Morningstar research.

The statistic is slightly less terrible than when it was first disclosed in November 2019: this time around, the number of funds managed by women does at least amount to more than the number overseen by Daves (95 compared with 68).

But the proportion of all industry portfolios run by women has remained more or less static over the period, at just over 7 per cent. Signs of real progress are thin on the ground, and the onus remains firmly on fund management firms to do something about that.

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