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Wealth managers await extra slices of the pie; A rapid rise for an unloved asset class

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Ushering in

We’ve spoken a lot this year about the retail investing boom, and whether or not wealth managers can ultimately take advantage.

Inevitably, much of this discussion is conducted in nebulous terms. It feels right to assume some of those bitten by the investing bug will ultimately seek out the services of an adviser. But measuring the extent of that interest is another thing altogether.

For one thing, it can several years before those switches occur. And given most firms’ minimum investable levels, these shifts will rely on the continued amassing of wealth in the meantime.

But what of those who don’t invest at all? The FCA today set out its strategy for limiting consumer harm – and despite all the focus on those buying meme stocks or even cryptocurrencies, the regulator has concerns about the cautious, too.

Its data shows that some 37 per cent of UK adults with at least £10,000 in investable assets hold all of this in cash. An additional 18 per cent do the same with at least three-quarters of their pots.

Were they to hold precisely £10,000 apiece and no more, the first group alone would have £32bn in investible assets. The real figure, needless to say, is likely to be far higher.

The FCA wants to give these consumers “the confident to invest”; it’s exploring how to “make it easier for firms to provide more help to consumers who want to invest in relatively straightforward products”, for instance those “which are well diversified (such as tracker products)”.

That sounds like ushering them towards robo advice, though the FCA acknowledges these services are currently failing to bridge the gap caused by a lack of industry-wide advice.

All the same, if the watchdog's successful in introducing more to the world of investment – at the same time as dampening enthusiasm among excessive risktakers – that could mean much more money starts to flow into mainstream fund structures.

Back to Japan

Those tasked with investing capital responsibly face plenty of tricky day-to-day decisions of their own on. Not for the first time, short-term moves in Japan have given DFMs plenty to ponder in recent weeks.

Many portfolio managers arriving back at their desks will have noted the rapid rally in Japanese equities seen since – or, to be more precise, shortly before – the resignation of prime minister Suga was announced earlier this month.

At a time when most indices have flatlined, Japanese equities’ jump over the past month puts them ahead of global and US indices year-to-date in local currency terms. They’re not too far behind on a sterling basis, either.

Yesterday’s BofA fund manager survey underlines this surge in popularity, and puts it in context: the past month has seen a notable increase in Japanese allocations, but that rise has only moved the average manager from underweight to neutral.

DFMs can afford to take a prudent approach, though this does mean a nagging question or two. Are buyers already too late? More to the point, is a change of prime minister actually a sign of better things to come?

That happened once before, courtesy of the rise of Abenomics. But the monetary policy picture is more nuanced this time around, and corporate Japan still faces some familiar issues. The average DFM portfolio still has a very limited exposure to Japanese shares, and come what may that’s unlikely to change in the near term. 

 

Value-add

 

For those weighing up the fortunes of mainstream indices, the value versus growth debate is still a live one. Value shares’ attraction has dimmed in recent months, and in the US its early-year outperformance was slightly artificial in any case.

As the WSJ points out, the Russell 2000 value index’s 2021 gains have been given an extra boost by meme stocks. The second biggest contributor to performance this year is GameStop. The retail investor favourite was removed from the index in June, but that still leaves another mass-market favourite – AMC – as the largest position in the index.

That’s a happy enough outcome for those tracking the benchmark. But any reversal in fortune for the cinema chain could have an outsize effect on how value shares’ performance is perceived for the rest of the year.

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