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It’s six months and one day since we last took a look at UK asset managers’ house views. Back then we noted that the big shifts that emerged at the end of 2020 – specifically the emergence of reopening/inflation trades – hadn’t prompted much change. This time, the opposite has happened.
At a macro level, the first half of 2021 contained nothing to rival the announcement of coronavirus vaccines or the changing of the guard in US politics. And yet fund firms’ asset class views have shifted much more this time round.
Whether that’s due to other factors, or simply a reflection of the fact they were slow to acknowledge the impact of last November’s news, is up for debate.
The chart below shows the asset allocation preferences of 10 leading fund managers as of the second half of 2021.
Compare with their views at the start of the year, and the big changes are immediately apparent. UK and European equities have seen a significant increase in interest – and it’s hard to put this down to anything other than a growing appreciation of value and/or economic recovery plays. There’s also a continued increase in appetite for Japan.
But enthusiasm for Asian and EM equities is much harder to spot nowadays. That's one shift that would have been harder to foresee at the end of last year.
For bonds, the most notable change is the steep drop off in the number who have a positive view of investment grade debt. Only high yield can be said to have much in the way of enthusiasm this quarter.
That speaks to a wider theme: in January, we pointed out a sharp increase in the number of neutral positions being taken across the asset class spectrum. Despite the growing interest in developed market equities, the neutral views have increased their overall share again this time. That suggests asset allocation calls remain tougher than usual at the moment.
The growth of on-platform model portfolios has been rapid in recent years, to the extent that many are now rivalling the biggest unitised offerings of old.
The largest on-platform MPS offerings now have around £10bn in assets, spread across a variety of different portfolios. That’s comparable with the very biggest multi-asset or multi-manager ranges.
Even those who don’t focus their attentions on MPS will often have relatively concentrated buy-lists. That means the decision to buy or sell a fund might have an impact across all their bespoke, model and other portfolios.
What does this mean for underlying funds? The buying and selling activity of the very biggest selectors still has a relatively limited impact on industry fund flows. But events across the Atlantic underline the fact that, as the big get bigger, so too might the ripple effects.
The WSJ reported last week that a shift BlackRock’s US model portfolio allocations prompted, among other things, a $1bn inflow into one of its passive commodities ETFs.
Models are booming in the US as in the UK – the paper cites data from Broadridge showing US model portfolios held $4.8trn in assets this March, up from $3trn a year ago.
Clearly, the UK market will never reach this size. And there are mitigating factors for most domestic fund buyers: removing a fund from a buy-list is often a gradual process. And in most cases investors are alive to the possibility that they – or a co-investor – holds too much of a given fund.
Nonetheless, as buying and selling becomes more centralised, and industry assets continue to swell, more funds might find their fate rests firmly in the hands of a select few DFMs.
Speaking of swelling assets: the world’s largest asset manager is nearing another landmark threshold. BlackRock today reported its assets under management rose to a record $9.5trn in the second quarter, putting it within touching distance of the 14-figure mark.
That said, with such size comes the possibility of mandate withdrawals that are magnitudes bigger than the amounts discussed in the story above. The company was able to more or less shrug off “the loss of a $58bn equity index mandate”, according to analysts cited by the FT. And it's clear where the drivers of growth remain: iShares AUM rose above $3trn for the first time, with net inflows of $75bn almost 50 per cent higher than they were a year ago.