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Investment Companies Insights
31 May 2017
Active management fight back
Investment Companies Insights
The recent news that Vanguard has launched an on-line platform selling its low cost
range of passive and active funds direct to the public in the UK has attracted much press
comment. Investors will only be able to invest in Vanguards own funds, mostly passive
funds, at an average price of 0.14% of invested amount. By selling its funds directly to
UK investors Vanguard is seen by many to be introducing a new price war.
For much of the past year the references to costs and charges has been linked to the
increasing market share of passive investment. Against this trend of continued growth
of passive investment, Q1 2017 saw a reversal of fortune for active management as
European fund managers recorded their highest quarterly inflows since 2012. This
strong inflow was across equities, bonds and alternative mandates. Equity funds
recording the best net inflows, covering both developed and emerging market funds.
The supporters of active management have continued to promote a long-term
investment approach and the permanent capital model. An approach that plays to the
strength of investment companies. This has also been the attributed to the success of
Endowment funds, such as Yale University Endowment and other Ivy League University
Endowment funds.
Closer to home the performance record of the Church Commissioners has shown the
benefits of active management and a long term investment horizon. The total return on
assets in 2016 was 17.1 percent and over 10 and 20 years the return were 8.3 percent
and 9.5 percent. The return was helped by weightings to global equities, property,
private equity and timber.
As well as a long-term investment approach, promotors of active management have also
highlighted the measure of a high active share to increase performance potential v passive
investment. The announcement by Witan Investment Trust on the reduction from five
to three managers with a global remit is expected to see Witan’s combined active share
rise from 70% to 74%. The changes at Alliance Trust to its new multi managers
approach also places great emphasis on active managers that run concentrated portfolios
(in this case typically 20 stocks). The combination of high active share and different
investment styles is expected to deliver not only better, but also smoother and more
consistent returns for Alliance Trust shareholders.
Sector Activity
2017 has continued to see strong support for secondary issues by investment companies
and 7 IPO’s. The year to date figure is £3.7bn, excluding regular tap issues, and in May
will be at least £1.3bn, including 3 IPO’s (Downing Strategic Micro-Cap Trust £55.6m,
Jupiter Emerging & Frontier Income Trust £90m and The PRS REIT £250m)
Tom Durie
[email protected]
The majority of monies were raised by funds focused on infrastructure, long income
property and alternative fixed income and lending. There continue to be a few equities
based funds raising capital. In addition to the two IPOs highlighted above, Henderson
International Income Trust raised £21.5m and Mid Wynd International is seeking to
raise £100m.
+44 (0) 203 897 1831
Radnor Capital Partners Ltd is authorised and regulated by the FCA.
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