The two investment areas offering a 'boutique premium'

The two investment areas offering a 'boutique premium'

Emerging market and European mid and small cap equities are the area where advisers should invest via smaller, boutique asset management firms, according to research from Cass business school. 

In a research paper entitled “Is there a boutique asset management premium” the report's author, Andrew Clare, found these were the areas of the market where the outperformance of smaller fund management groups was most pronounced.

The report found funds run by asset management companies that were part of banks tended to generally underperform.

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The study found that large fund groups benefitted considerably from scale, such as in being able to access initial public offerings (IPOs) early, which did contribute a significant advantage, but overall the boutique funds on average still outperformed funds managed by large asset managers by just over 0.8 per cent.

The author defined a boutique fund house as one where the primary business of the firm is asset management, where the management of the firm own at least 10 per cent of the equity, and where the assets under management are less than £77bn. 

The report found boutique funds were generally more expensive than those run by large fund houses, because the large houses benefitted from economies of scale, but even with the higher fees taken into account, the outperformance remained in those areas. 

The report stated: “Europe large cap funds outperform the mega funds by 0.33 per cent pa on a gross-of-fee basis and by 0.08 per cent in net-of-fee terms.

"This outperformance is higher for the Europe mid/small cap sector at 1.45 per cent and 0.94 per cent respectively. Outside of European equity markets we find that the boutique global emerging markets funds outperform the equivalent mega funds by 0.42 per cent per annum and 0.54 per cent per annum on a gross and net-of-fee bases respectively."

Darius McDermott, managing director at Chelsea Financial Services, said: "For me this is all about managers being happy in their work environment and that includes running the correct amount of money. 

"Broadly fund managers feel they are more involved in the actual running of a business if they are in boutiques rather than larger organisations. Our job is to try and asses a manager's ability to outperform and we find this comes in both boutiques and larger asset managers...but we do have a slight preference for boutiques."

Ben Yearsely, investment director at Fairview, said: "It isn’t necessarily the boutique structure, it is the culture within the firm that is important where the fund managers have effective ownership of funds.

"I think fund size also has an important factor to play and I assume in a boutique you are more likely to be able to limit the fund size."

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