LONDON (November 5, 2024) – Net sales of multi-asset funds, in the U.K. turned positive for the first time in five quarters in Q2 reaching £0.5 billion, according to new data from ISS Market Intelligence (ISS MI).
Multi-asset fund sales soared to over £14 billion in the first half of the year, up 25 percent compared with the final six months of 2023.
Funds-of-funds (FoFs) led the way in driving multi-asset sales forward, recording a six-month trailing growth rate of 33 percent.
Regional sales growth of multi-asset funds varied considerably, with Scotland and the North West registering growth of more than 30 percent. By contrast, the North East saw sales fall 9.0 percent.
Benjamin Reed-Hurwitz, EMEA Research leader at ISS MI and lead author of the MPS Report, says: “It’s encouraging to see positive sales for multi-asset funds for the first time in five quarters. However, it’s still too early to call this a trend; at the very least we’ll need to see that replicated in the next quarter’s data to make that call.
“The previously speculated changes around capital gains tax could well explain why more investor money is being directed towards multi-asset funds, given their tax efficiency. If this was the case, then the recently confirmed tax changes should add strength to this trend. As a single fund made up of multiple underlying funds, multi-asset funds allow managers to make asset changes without triggering a CGT liability, unlike model portfolios.
“Still, net sales of just £100 million suggest there’s significant churn within the category, with capital largely flowing between fund groups instead of new cash being invested in these vehicles.”
For the first time, the report highlights how financial advice firms have adopted multi-asset funds into their practice.
While there are many examples of firms selecting from an internally managed multi-asset fund range, insourcing remains rare in comparison to the model portfolio business, accounting for just 20 percent of sales in H1.
Further, 62 percent of financial adviser firms were found to use five or more fund providers for their multi-asset offerings, suggesting advisers prioritise choice and are selecting different fund groups for specific specialisms.
When it comes to FofFs, ISS MI’s data shows that 60 percent of underlying FoFs assets are in a manager’s own funds.
FoFs primarily using unaffiliated underlying funds leaned slightly towards the use of passively managed solutions, with such solutions accounting for 53 percent of underlying fund assets.
Underlying actively managed fund assets continued to tilt further towards equities, with a weighting of 63 percent.
Reed-Hurwitz adds: “The fact that insourcing still represents only 20 percent of gross sales indicates that financial advisers continue to prefer a selection of ready-made, off-the-shelf investment solutions.”
“Additionally, with most advisers relying on the services of five or more asset managers, it’s clear that they value the specialised expertise that each manager brings. This trend highlights a strong demand for diverse, expert-led options to meet a range of client needs.”
ISS MI’s Simfund Fee & Expense data reveals that more than 50 percent of sales went into funds with an ongoing charges figure (OCF) below 50bps, highlighting the inclination toward low-cost solutions.
Many of the leading multi-asset funds favour an underlying fund mix that consists of either passively managed funds exclusively or a blend of active and passively managed solutions.
Reed-Hurwitz adds: “Purely active fund allocations are becoming rarer today, not just with FoFs managers but across the asset allocator universe. These days, passive funds are very much the cornerstone of the UK investment landscape. While active options continue as a mainstay; their use is more strategic than before but are applied to achieve higher returns or greater diversification.”
To learn more about ISS MI’s Multi Asset Fund Sales Report, visit https://www.issmarketintelligence.com/solutions/marketsage/uk-multi-asset-sales-report/
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