01 Feb Cost of living weighs on investor sentiment and direct market
The final quarter of 2022 was tough for D2C platforms. However, the markets did provide some respite, in the form of rising asset values, as they recovered much of the losses of the previous quarter.
Total D2C assets were up 4.2% on the previous quarter to £280bn, but down 9% compared to last year. Consumer sentiment is the principal driver for flows in the D2C market, but waves of bad news and the cost-of-living crisis were a double-whammy for the industry. Gross flows totalled just £6.4bn for the quarter, bringing the annual total to £34.3bn — well below 2021’s £45.5bn. It was even worse for net sales, which amounted to just £1bn this quarter, taking the annual total to £11.5bn – a third of 2021’s sales.
Hargreaves and interactive investor (now part of abrdn) are the largest platforms by assets and benefitted the most from the market recovery in the final quarter of 2022. However, Vanguard punched well above its weight. It was second for gross sales for the quarter and topped the table for net sales for both the quarter and the year, outperforming much larger platforms. The simplicity of its pricing and proposition particularly resonates with UK investors during difficult times.
Martin Barnett, Head of Content at Fundscape said, ‘Of all retail investment markets, the direct market is the most susceptible to consumer sentiment. That sentiment is firmly rooted in the here-and-now, and the here-and-now is dominated by the squeeze on living standards brought about by inflation, energy prices and the war in Ukraine. For as long as this continues, we are likely to see depressed levels of new business. Some of the smaller providers will inevitably struggle, despite the boost to revenues from the recent recovery in asset values. We expect some to exit the market or be acquired.’
For an industry reliant on a good economic outlook and positive investor sentiment, predictions of a downturn of 12-18 months make grim reading. However, in Davos where the great and the (not always so) recently gathered, the International Monetary Fund (IMF) painted a more optimistic picture of the world economy in 2023, predicting an improvement in the second half the year. Let’s hope that includes the UK.
- The advised portion of HL’s business has been excluded.
- interactive investor figures have been estimated.
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Notes to editors: The Direct Matters report covers the direct market and is published by Fundscape. It has been running since Q121. For further information or background, please contact firstname.lastname@example.org or visit www.fundscape.co.uk. A total of 19 platforms are included in the analysis. Platform coverage is estimated at 98% of the platform universe.