In short, intermediaries and other fund selectors may be caught between two poles. As Mark Tinker, head of Asian equities at Axa Framlington, says: “All the winning trades in the first half of the year appear to have unwound, while few of the losing ones have recovered.”
This, he says, means “2018 looks set to go down as a year in which nothing worked”.
Mr Tinker adds: “A year of deleveraging has unwound many of the winning trades of the past three years over the past six months. While not repeating the stress of 2008 or even 1998 (Long Term Capital Management), we do feel like 2019 will start in a similar way to 1999 and 2009: the narrative is terrible, risks are everywhere and all are gloomy. Yet both years ran well from the end of the first quarter.
“As quantitative easing unwinds yet further, a back-to-basics approach focused on sound balance sheets, strong cash flow and active management looks sensible.”
Aside from sentiment, what of the other fundamental driver of retail flows – DB pension transfers? Whatever advisers’ views on the wisdom of such transactions, there seems little doubt that the recent dip in transfer volumes has had an impact on fund sales.
But analysts at RBC think this will just be a temporary pause. It points to two factors that delayed transfers in 2018: closer scrutiny from the FCA and, more recently, a UK High Court ruling that said benefits must be equalised for men and women who are contracted-out scheme members with guaranteed minimum pensions. Some schemes have suspended transfer values while they assess how they are affected by the ruling.
“We forecast a 5 per cent decline in DB to DC [defined contribution] transfer value activity in 2018 versus 2017,” the company’s analysts said at the start of December.
“However, we expect a 25 per cent increase in DB to DC transfers in 2019-20, as transfers that were delayed in 2018 are completed.”
If the surge restarts, it will ensure advisers continue to place plenty of business with active and passive fund providers in 2019. The question of where precisely they allocate that money will remain as urgent as ever.
