The number of funds launched in the UK is on course to slump to a decade low this year, new figures show, suggesting that asset managers are wary of an oversaturated market despite a booming year for fund sales.
Data provided to Investment Adviser by Thomson Reuters Lipper shows that just 109 products had been launched year to date as of mid-September, well below a yearly average of 192 for the preceding decade.
Launch trends are commonly governed by market conditions, with downturns resulting in a lower number of new products. The stockmarket volatility that marked the opening weeks of 2016 was accompanied by subdued launch activity.
No such problems exist in 2017, with markets ticking steadily upwards for much of the year. At the same time, asset managers have banked robust levels of new business: the first half of the year was the strongest on record in terms of net retail fund flows.
Ben Seager-Scott, chief investment strategist at Tilney Group, suggested structural changes in the industry could be “distracting” managers from any product push.
“There has been some high-profile merger and acquisition activity, and a few fund manager changes recently, which could see some of the big players focus on digesting these activities first,” Mr Seager-Scott explained.
“There’s also Mifid II coming up… there’s an argument that providers and fund selectors are waiting until the industry is less distracted by these factors.”
The most recent low for fund launch numbers was recorded in 2014, when just 135 launches went ahead. Given that December is often a quiet period for new business activity, 2017 looks set to fall short of even this figure.
Stretched valuations on many asset classes may also help to explain the reluctance of providers to launch new offerings. Current market levels mean that many asset allocators are retaining high allocations to cash, rather than being fully invested.
For those running funds, the investment case may appear less compelling.
David Thomas, chief executive of Seneca Investment Managers, suggested asset managers may be unwilling to deploy capital this late in the market cycle.
“Perhaps fund groups are considering holding off for a couple of years until they can position a new product at a lower market level,” Mr Thomas said.
Industry dynamics also play a role. Active managers are under increased pressure to justify their fees, as shown by the FCA’s market study earlier this year. In this context, providers will find it increasingly difficult to make the case for both new and existing funds if these appear uncompetitive.
Philippa Gee, a fund buyer, suggested investor behaviour was also driving change.
“Investors have learned that ‘me too’ products don’t always add value for money,” Ms Gee explained.
“With increasing online access and transparency of charges, there are less places for expensive or badly performing fund managers to hide. Finally, with the costs being more visible and fund managers having to gain significant assets to make the future of a fund tenable, they can’t take the risks of launching a new fund that may not make it.”
Mr Seager-Scott suggested fund firms would be “focusing more on their current ranges”, given these factors. For selectors already having to choose from thousands of funds, this may come as a relief.
“It should help to deliver more positive outcomes for investors,” added Ms Gee.
KEY NUMBERS
£18.4bn
Net retail flows into fundsin the first half of 2017
192
Yearly average of fund launches for the decade preceding 2017
