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Asset Allocator

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Fund firms' sentiment gauge shows little sign of rebound; Volume slump raises eyebrows

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

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Failure to launch

At the end of last month, we noted that headline market moves in Q1 ultimately paled in comparison with the drama of 2020's first quarter. Performance figures make that clear, as do the rebound in investor confidence, the prospect of economic recovery, and so on.

This sunnier state of affairs hasn’t yet reached one particular investment bellwether. Take a look at new fund launches so far in 2021, and there’s no sign of any upturn in fortunes. In the first three months of this year there were just 28 UK or Irish-domiciled funds launched, according to Morningstar figures. That’s actually down year-on-year: 30 debuted in the equivalent period in 2020.

These figures are around half the number of new strategies rolled out in 2019, though that latter stat may have been flattered by asset managers’ Brexit preparations. Either way, the average for the five years from 2015-2019 – of 50 new launches in Q1 – remains a long way off. Whether that's due to residual nervousness or just the persistent difficulties in remote fundraising is an open question.

But what has changed, funnily enough, is the proportion of launches that are badged as sustainable strategies, or some close relation. So far this year, 54 per cent have been of that nature, a huge leap from the 17 per cent this time last year, and the 7 per cent recorded in 2019.

Fund selectors have diverging views on new product launches: some say the market's already over-saturated, others think there are still plenty of gaps to be filled. But from distributors’ perspective, it’s clear that their remaining eggs are increasingly being placed in a single basket.

Volume fade

While things have been calm enough on the surface, there's been plenty of underlying activity for allocators to digest in the first quarter. Not just cyclical stocks’ recovery, but also, for instance, the rise of the retail investor. Elevated trading volumes and, how shall we say, unusual single-stock moves have been a feature of the start of 2021. Could that be about to change?

The received wisdom is that an absence of other entertainment options is partly behind the increase in retail trading volumes. Not all industry participants agree with that theory; some suspect the structural changes that have aided this shift, such as the dawn of commission-free trading in the US, indicate this is a phenomenon that’s here to stay. And of course, it's not just retail investors who are causing ripples in individual companies at the moment.

But those who do cite the ‘lockdown factor’ now have another correlation to point to. As the US economy gradually opens up, trading volumes across the pond have dipped markedly in recent weeks.

This drop has continued in recent days, though it will be a while longer before the events of Q1 can be written off as an aberration. The timing of Easter, as much as anything else, might have had something to do with the most recent slump in activity.

But if activity does continue to fade away, that wouldn't present a particular problem for the readers of this newsletter. For wealth managers looking at the next generation of prospective clients, a sudden end to the day-trading craze doesn’t necessarily spell bad news for future prospects. For existing portfolios, a period in which fundamentals continue to reassert themselves would be no bad thing, either.

Shut out

One final look back at March, and a relatively rare occurrence for UK fund selectors these days: a soft-closure. Premier Miton has reintroduced the initial charge on its UK Smaller Companies strategy after a remarkable run over the past year.

DFMs have largely missed out on that run. As is often the case, the strategy’s surge in performance followed on from a period in which many holders sold out. That means there are very few who still include the offering in their model portfolio ranges, according to our fund selection database. And for those who are now looking more closely at smaller companies, in this day and age there are still plenty of other viable options awaiting their cash.

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