DFMs find few comforts at home; Ninety One fund reaches pole position

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Edge away

Hot off the (virtual) presses is the latest update to our allocations database, which reveals that DFMs trimmed the equity exposure in their balanced portfolios between March and May this year.

At the start of May, of those DFMs, the average allocation to equities was 57.7 per cent, compared with just under 60 per cent at the end of March, though both figures are higher than the 52 per cent allocation at the end of October last year. 

The DFM with the largest equity allocation at the start of May remains Smith & Williamson with a mighty 77 per cent in equities in its balanced portfolio. Though even S&W has cut its equity exposure from 79 per cent in recent months.

The reduction seems to have come from what been chunky exposure to UK - 24 per cent at end of February to 22 per cent at the start of May - and Asian equities, which dropped from 10 per cent to 8 per cent, though James Burns and his team did increase exposure to US equities.

Indeed S&W is not alone: the average UK equity exposure has fallen to 16.5 per cent from 17.2 per cent.

The caveat with all of these changes is that they could be a function of market movements.

Brewin Dolphin, Close Brothers and Rathbones were jointly the DFMs next most exposed to equities, at 66 per cent, with Rathbones' allocation having dropped by around one percentage point since the end of February. 

Again that may be a function of the performance of asset classes rather than a deliberate investment decision. 

What’s particularly notable about Rathbones allocation is the lack of UK equities - they have one of the lowest exposures to the UK of the DFMs in our database and it has now been cut even further: to less than 8 per cent. This is less than half the average for the DFMs on our database.

Sustainable little earners

The much-publicised speech by Stuart Kirk, the head of responsible investments at HSBC Asset Management, has caused some, though arguably not enough, introspection among fund buyers.

For those who have been living under a rock: Kirk was suspended by HSBC after giving a speech in which he accused central bankers (among others) of exaggerating the financial risks of climate change.

But while the kerfuffle has been raging away, demand for the asset class remains strong, with Investment Association data indicating net inflows of £1.2bn in April, doubtless boosted by Isa seasonal demand.

This means responsible investment mandates now account for 5.8 per cent of the market.

Our freshly-updated database of ESG funds held by DFMs reveals the Ninety One Global Environment fund and the Royal London Sustainable Leaders fund, both held in 10 ESG portfolios, to be the most popular responsible investment mandates across all asset classes.

Both funds have attracted new DFM clients in the first half of 2022 and, in the case of the Ninety One fund, the momentum has been strong, attracting three new DFM clients since the start of this year.

Indeed in recent months the Ninety One fund has overtaken Janus Henderson Global Sustainable Equity and BMO Responsible Global Equity to become the most popular global ESG fund among DFMs in our database.

The fund, which is managed by Deirdre Cooper and Graeme Baker, was launched in December 2019 so is a relative newcomer and its lack of a three year track record means it can’t even appear on the radar of some fund buyers - but it has still grown to £1.8bn in size.

One wonders if the word "environment" in the fund title means DFMs have a clearer understanding of what the fund aims to do, as compared with funds that use more generic or amorphous terms such as "transition" or "responsible" to market their mandates.

Indeed the Ninety One fund's objective is fairly simple: at least two thirds of its assets will be invested in companies which contribute to the sustainable reduction of carbon dioxide emissions.

When some ESG funds can take up paragraph upon paragraph to explain what exactly they are up to, perhaps this clarity of intention is a key selling point.

Asset Allocator is written by Dan Jones (Dan.Jones@ft.com) and Dave Baxter (David.Baxter@ft.com)