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Goldilocks and Garp to the fore for equity markets; Trust issues resurface for fund firms

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Recalibration

A striking statistic to begin the week: at current rates, equity funds are due to take in more money in 2021 than in the previous 20 years combined. That’s despite – or perhaps because of – the fact that financial markets are “intensely dull” at the moment.

These two factors would seem to be the ideal combination for investment managers. All the same, there’s enough going on beneath the surface to give pause. June may have appeared moribund, but the sight of a 5.5 per cent bounce for the Nasdaq coupled with struggling financials represented a reassertion of past trends.

JPMorgan analysts note the MSCI World Value has now given up half of the outperformance versus the MSCI World seen since November 2020. The likes of gold have also struggled in recent weeks as the reflation trade takes a knock.

What does all this mean for the medium term? SocGen’s global quantitative team think shifts like these suggest “over-crowded positioning, rather than a radical rethinking of the reflation story”.

Others aren’t quite so sure. Goldman Sachs believe value will still outperform growth in the second half, but say “the distinction could become less important in the new cycle”. They predict there’s now less prospect of positive macro surprises, and that ‘growth optimism’ will decline – though Europe, ever the laggard, has more potential on this front.

Goldman’s broad conclusion is that markets will spend more time in a ‘Goldilocks’ mindset for the rest of this year, similar to that seen in April/May as well as many years previous.

JPM’s team, for its part, note that hedge funds are now starting to avoid both cheap and expensive stocks. They suggest good old Growth at a Reasonable Price “might be the thing to focus on” from hereon in. Most wealth managers would be more than happy with that outcome.

Swing and a miss

There was surprise in some quarters last week at the sight of Liontrust scrapping its planned ESG trust launch, the company having failed to reach its £100 to £150m fundraising target.

The fund firm’s own track record is partly responsible. There’s widespread recognition that launching a mainstream investment trust is difficult – of last year’s much-vaunted trio of proposed UK equity launches, only that run by Schroders got off the ground. The assumption was perhaps that Liontrust’s continued ascent up the fund management ladder would help it override structural barriers to entry.

Confirmation that this wasn’t the case simply emphasises the height of those barriers, as we wrote last month. Few asset managers are as favoured by wealth managers as Liontrust – but this goodwill can’t automatically translate into monetary backing during a short fundraising period.

AJ Bell’s Ryan Hughes this morning suggests some of those would-be backers were perhaps waiting for the trust to launch, before buying in at a discount down the line. That strategy, needless to say, isn’t particularly helpful to product providers.

As that implies, this isn't a repudiation of ESG - rather it’s a recognition that ESG is already mainstream. Successful trust launches tend to focus on niche areas of the market.

Some still see potential on this front when it comes to particular parts of the ESG universe, but sustainable investing on the whole is now as well served by investment trusts as it is most other areas. For those focused on more typical pursuits, the options remain either rebranding or taking over another proposition.

Structural support

All that be as it may, latest figures from the Association of Investment Companies show that the first six months of 2021 was a record period for the investment trust sector. Some £6.3bn was raised over that period, a new high.

A record £5.1bn of this total came from secondary fundraisings. For those who can get off the ground, the prospects of accruing additional money remain decidedly healthy.

IPOs, meanwhile, raised £1.2bn – the highest figure for four years. The launches of Cordiant Digital Infrastructure, VH Global Sustainable Energy, Digital 9 Infrastructure, Taylor Maritime Investments and Aquila Energy Efficiency emphasise that its infrastructure in particular that remains the driver of growth in the trust world.

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