28 Oct 2019
Fundscape and GBi2 have published Gatekeepers 2019, the third annual edition of their Gatekeeper research. The report accompanies the quarterly Gatekeepers database and provides an overview of Gatekeepers as at June 2019.
The dichotomy between D2C and DFM
Previous editions of the Gatekeepers report helped fund managers present their funds to researchers in the best light. We looked at the most common characteristics of selected managers and funds and what those managers need to do to get listed. We discussed gatekeeper influence with fund managers, distributors and the researchers themselves – both independent and distributor dependent – and the data on their usage by advisers and investors.
The 2019 edition continues in much the same vein, but places additional focus on discretionary fund managers (DFMs) and direct-to-consumer lists. These gatekeeper cohorts represent two ends of the same investment spectrum, but their use of funds in portfolios, buy-lists and multi-manager funds has a considerable impact on fund managers and end consumers alike. The Woodford Affair has finally brought into sharp focus the idiosyncrasies of fund research and selection that the report has identified and highlighted since the first issue in 2016.
Bella Caridade-Ferreira, CEO of Fundscape commented “The last couple of years have been challenging for the investment industry with Brexit and US trade wars affecting investor sentiment. In this scenario, net investment falls and Gatekeeper influence rises dramatically — if fund groups aren’t on Gatekeepers’ radars, they could be missing out on substantial flows. Gatekeepers control around 70% of platform flows, but when the going gets as tough as it’s been this year, they control as much as 95% or more of platform flows because both advisers and investors prefer to place their money with safe pairs of hands — professional fund selectors.”
Based on Fundscape’s proprietary platform data, we estimate that the various types of gatekeepers (funds of funds, preferential fund deals, shortlists, model portfolios etc) account for roughly 70% of all fund assets. Gatekeepers controlled £468bn of platform assets at the end of June 2019. We expect that figure to rise to £699bn by 2024, a conservative compound annual growth rate of 10%. An optimistic scenario would take Gatekeepered assets to £825bn+.
Graham Bentley, CEO of GBI2 commented “Selecting funds by identifying in advance the likely best performers is a process that has no certainty of outcome. Luck plays a significant role in determining degrees of success or failure, so fund selection has to be considered more art than science. Human beings tend to be over-confident in their belief that the future is forecastable, and the past is repeatable. The herd-like adoption of Woodford funds demonstrates that expertise in fund selection can lead to sub-optimal outcomes for investors, and especially business risk for those who use these forecasts on investors’ behalf.”
- In this report, we analyse gatekeepers individually as well as cohorts. The best cohorts are consumer-facing lists that are published by consumer finance press (three-year return of 12.71%) or D2C lists (three-year return of 10.63%).
- The worst cohort is DFMs with a three-year return of 8.22%. However, it is important to consider the breadth of their investment strategies that can range from aggressive through to income-generating or capital preservation portfolios and which will affect their overall outcome.
- Given the adviser outsourcing trend, this report focuses on DFMs and their investing behaviour. DFM-led model portfolios on retail-advised platforms represent £176bn as at June 2019 and DFM influence ranges from 2.9% on Aegon through to substantially more on platforms like Raymond James and 7im. The average across the advised platform world is 18%.
- If we take into account non-platform assets and the broader private client and wealth market, we estimate that DFMs control around £865bn in the UK. The largest is Deutsche Bank with a market share of 22.9%, followed by GAM on 12.5% and Cazenove on 7%.
- Despite the known benefits of diversification, DFM portfolios are heavily weighted towards UK equities. They also use many of the same funds. The Merian Global Equity Absolute Return is top of the DFM pops with a remarkable 62 selections implying it is a virtual fixture across portfolios of all risk hues. This is partly because what DFMs need from fund groups and funds in terms of size, liquidity and performance can limit the field somewhat.
- The most popular fund groups with all fund selectors are BlackRock, Fidelity and Quilter with 733, 462 and 456 fund selections respectively. Rising stars are Baillie Gifford, Liontrust and JPMorgan. Baillie Gifford has six sector-topping funds and although it has 247 picks, it is yet to command the picks that its peers attract.
Notes to Editors:
About the Gatekeepers Report
The Gatekeepers report is jointly produced by Fundscape and GBI2 and is available as a stand-alone report and with a database that is updated quarterly. The study is an exhaustive review of fund selectors’ lists against several performance indicators, providing advisers, fund groups and gatekeepers with the tools to gain an advantage in this highly competitive environment.
More information: https://fundscape.co.uk/service/gatekeepers/
Established in October 2010, Fundscape is a research house specialising in the end-to-end research and analysis of the UK fund industry. It is the publisher of the quarterly Fundscape Platform Report, widely regarded as the industry benchmark for platform data and statistics in the UK. With many years’ industry experience, its team is well placed to provide unique insight into asset management and distribution trends, including product development, distribution and marketing.
gbi2 advises firms on their investment propositions and marketing strategies, and on strategy regarding global relationships between asset managers and distributors. In the asset management space it is helping fund managers navigate the impending ‘watershed’ in the investment management industry, caused by the FCA’s increasing focus on fund groups’ customer relationships and associated product development.
For further information or background please contact:
Bella Caridade-Ferreira tel: +44 (0)20 3948 1745 email: email@example.com
Graham Bentley tel: + 44 (0)7909 681176 email: firstname.lastname@example.org