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Survey

Wealth managers to increase allocation to boutiques

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Forty-one per cent of wealth managers and multi managers expect to increase their asset allocation to boutiques over the next 12 to 18 months. Only 23% expect to increase the percentage of their assets in passive funds.

That’s according to a survey conducted by fund distribution company Harrington Cooper, which also found that 95% of wealth managers and multi managers in the UK are attracted to boutique investing as they believe that smaller funds are much more nimble and able to adapt quickly to changes in the market. 
 
Other key reasons for allocating to boutiques include:

  • The belief that the interests of the investor and the fund manager are much more aligned within boutiques due to their small size (81% agree). 
  • Smaller funds are far better placed to deliver alpha (79% agree).
  • These funds offer a more active investment approach (74% agree).

 
Interestingly, 82% of wealth managers and multi managers did not view brand recognition of the fund house among their client base as an important factor when selecting a fund house. Furthermore, only 18% of those surveyed view a manager being star rated as important.
 
The increased interest in boutiques comes as managers look for new sources of alpha and to protect against challenging economic conditions by diversifying their portfolios. As a result, 92%, of wealth managers and multi managers look for funds with a high Active Share, the percentage of the portfolio that differs from its benchmark index, when selecting funds. Research from Cremers and Petasjisto shows that funds with the highest Active Share significantly outperform their benchmarks, both before and after expenses and with significantly less volatility.
 
The survey also revealed that passive funds are not as popular as boutiques among professional fund selectors with the majority (60%) only holding between 1-10% of their total assets in passive funds. Ninety-four percent invest up to half of their total fund assets in boutiques.
 
Harry Dickinson, managing partner at Harrington Cooper, says: “Fund managers are under increasing pressure to deliver value for their fees and people do not want to pay money to invest in closet-tracking behemoths. 
 
“Time and time again we find that the best talent is found within boutique fund houses, from high conviction managers displaying high Active Share. These funds tend not only to provide stronger returns over time for investors but critically, help to diversify portfolios away from index returns, protecting against turbulent market conditions. The funds we distribute have seen large inflows in recent years and we expect this to continue, especially as professional investors increasingly look beyond the brand.
 
"It is both heartening and significant to see that professional fund investors, be they wealth managers, multi-managers or multi-asset managers, are highly discerning when it comes to investing their clients' money. They have built teams of experienced and objective fund analysts whose focus is on identifying investment talent that stands up to their scrutiny. They are not attracted by default to big brands and marketing budgets, but see the value in specialist boutiques and smaller funds.”

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