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Morningstar publishes managed portfolio study

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Morningstar has published its UK Managed Portfolios Landscape 2023, analysing around 1,100 UK managed portfolios. The report builds on its first iteration launched in 2022, and looks at on-platform UK managed portfolios, their allocations, use of underlying investments, performance and costs.

The firm finds that after a rapid expansion in the number of offerings between 2018 and 2022, there was a comparative dearth of new managed portfolio launches reported to Morningstar in the first half of 2023, down from 210 launches in 2020 to just five in 2023 so far. This may reflect the fact that many providers have already established their portfolio ranges, the firm notes.

The vast majority of managed portfolios are multi-asset offerings, with 93 per cent classified in Morningstar allocation categories. Of these, the two most popular categories are GBP Allocation 40-60 per cent Equity at 26.3 per cent and GBP Allocation 60-80 per cent Equity at 24.9 per cent.

Compared with 2022, the overall proportion of managed portfolios described by their providers as passive in terms of their holdings, increased to 29 per cent from 23 per cent, suggesting that cost continues to be a focus. Index funds continue to feature heavily in the list of most-held underlying funds, providing managers with low-cost building blocks suitable for a wide variety of portfolios.

Sustainable funds continue to feature prominently among the most-held active funds, with more than 25 per cent of managed portfolios in the database having a stated focus on sustainable investment.

Their primary underlying holdings are collective vehicles—mainly funds—with single stocks making up just 1 per cent of the mix. Mutual funds represent 83 per cent while exchange-traded funds make up about 12 per cent of holdings by number and closed-end funds 4 per cent.

Inflation-linked bond trackers have newly entered the lists of top 10 most-held index funds and ETFs, perhaps reflecting providers’ increased allocations to this sector where they see a valuation opportunity.

In allocation categories, except for the two most cautious categories, the median managed portfolio has struggled to outperform its respective Morningstar Category index, measured over the past five years.

The median management fee for both active and blended managed portfolios is 0.24 per cent, and 0.14 per cent for passive offerings. However, the largest component of costs is the combined ongoing charges of the underlying investments held, and when factoring this in, the median combined cost for active managed portfolios stands at 0.82 per cent compared with 0.28 per cent for passive managed portfolios.

Analysing the underlying funds most frequently held by UK managed portfolios included in the study, compared to the previous year, new entries in the top 10 include Fidelity Index US, Royal London Short Term Money Market, and L&G Global Inflation Linked Bond Index. Rathbone Ethical Bond remains the most frequently held active fund. Five funds with an ethical or sustainable approach feature in the top 10 active funds. Of the 14 underlying funds belonging to Morningstar money market categories, Royal London Short Term Money Market is the fund most frequently held.

Tom Mills, Senior Analyst, Multi-Asset & Alternatives, Morningstar, says: “The drop in the number of managed portfolio launches this year demonstrates the market is reaching maturity after we saw such rapid growth in the previous five years, with many providers now having established sizeable ranges spanning active, passive, blended and sustainable offerings.”

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