The big get bigger: Asset concentration leaps higher

The big get bigger: Asset concentration leaps higher
Sector assets held by top-10 funds

The proportion of assets held by the UK’s largest equity funds has increased materially in the past two years, spurring concerns about the viability of other products focusing on the asset class.

Analysis conducted by Investment Adviser shows a material rise in the concentration of assets within the IA UK All Companies sector. 

The proportion held by the 10 largest members of the peer group amounted to 33.1 per cent, up from 30.2 per cent the last time the research was conducted in November 2015.

The share taken by the biggest funds in the UK Smaller Companies cohort has also increased notably, from 51.9 per cent to 56.4 per cent, over the same period. 

A driving force for change in the UK All Companies group has been the continued surge of money into passives. 

Excluding the Invesco Perpetual Income funds, which are only present in the sector by virtue of their 2014 ejection from the UK Equity Income grouping, the largest five UK All Companies vehicles are all trackers. These five represent nearly 20 per cent of sector assets. 

Signs of a similar trend can also be observed in the European equity space. 

The top-10 funds account for 47.1 per cent of sector assets, up from 41 per cent in 2015, with two passive offerings among the largest for the first time.

Specialists have pointed to a closer focus on cost as one major cause for rising concentration levels.

“It’s a pressure on everyone at the moment in terms of being competitive,” said Rob Morgan, an investment analyst for Charles Stanley. 

“If a fund is below a certain size, fees are higher [while bigger products can cut fees]. There’s something of a polarisation there.”

Adrian Lowcock, investment director at Architas, said the change was a material one, and suggested the behaviour of those compiling fund selector buy lists also played a role.

“There has been an element of laziness in some buy lists,” he said. 

“They are running good ideas, but have become rather long in the tooth and stuck with their ideas.”

On a company level, rising concentration appears less of a concern. Last week the Investment Association said the 10 largest asset managers accounted for 44 per cent of assets in 2016, a figure that has remained “fairly constant” since 2012.

For fund buyers, the disproportionate growth of the most successful products has mixed consequences. The trend has been perceived as hurting embryonic boutique offerings, but aiding existing stockpickers.

“It’s quite restrictive for newer funds,” said Duncan Blyth, investment research director at Tcam. 

“[But] all of the passive money creates opportunities for active managers as it creates a more inefficient market.”

The research is discouraging for those managers running the sizeable proportion of funds that struggle to attract assets. 

Earlier this year, Investment Adviser reported that a third of vehicles with a track record of three years or more had failed to gather £50m in assets, suggesting a large chunk of the UK fund universe faced the risk of closure.