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July 20, 2016

Fund Selection Challenges in a Brexit World–Fund Selectors Forum 2016

by Jake Moeller.

The second annual Lipper Fund Selectors Forum was held at the Thomson Reuters Auditorium, Canary Wharf on July 13, 2016.

Mutual funds are always a hot topic and no more so than after the unexpected result from the British European Union referendum, resulting in high levels of volatility across popular fund sectors.

Following on from the highly successful inaugural event last year, Thomson Reuters Lipper again hosted a high-profile thought-leadership morning in collaboration with the Chartered Institute of Securities and Investment (CISI).The morning was dedicated exclusively to the discussion of key events that are important to fund gatekeepers and investors.

An audience of around 120 drawn from private wealth, IFAs, mutual fund managers, fund gatekeepers, platform providers, investors and journalists participated in an informative and entertaining two-hour session of panels and presentations that brought together some of the industry’s most respected fund-selection practitioners in the U.K.

The Art of Fund Selection 

Head of U.K. and Ireland Research at Thomson Reuters Lipper, Jake Moeller presided over the first panel session, with panellists Victoria Hasler from Square Mile Research, Mona Shah from Rathbones, and Tony Yousefian from FundCalibre. The panellists agreed that the outlook for mutual funds in the post-referendum world is certainly more challenging but that a long-term focus for investors needs to be encouraged. None of the panellists would materially change the way they pick their funds as a result of the vote, with the criteria of “transparent and repeatable process” remaining a key metric.

The panel also urged calm on the issue of U.K. property fund suspensions, with a consensus view that the environment isn’t analogous to the 2007/2008 property crisis and that investors should always understand that property isn’t a readily realizable asset class.

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(L-R) Jake Moeller, Victoria Hasler, Tony Yousefian & Mona Shah. Photo: Thomson Reuters

The panellists iterated the considerable level of due-diligence that is undertaken before any fund is included on a panel, with all agreeing that meeting and interviewing the lead manager is the most material factor in assessing a mutual fund.

Fund Manager Challenges in 2016

Lipper’s Jake Moeller presented a session on some of the challenges facing U.K.-based fund managers. He highlighted how short-term volatility across a number of U.K.-domiciled fund sectors has receded since the “Brexit” vote. However, using the Eikon Flows module, he showed that risk aversion is evident still in current flows into money market vehicles. He also used Lipper performance data to show that the majority of active funds in the European and U.K. sectors sit above the first-ranked passive fund over three and five years over various rolling periods. There are “considerable potential opportunity costs” to investing in a low-cost passive option, according to Mr. Moeller.

Lippers Jake Moeller highlights recent fund flow risk aversion in Eikon.

Lipper’s Jake Moeller highlights recent fund flow risk aversion in Eikon. Photo: Thomson Reuters

Mr. Moeller also showed, using the Regulation Tool, the considerable regulatory and compliance burden facing asset managers; there were 51,000 regulatory updates for compliance officers to contend with in 2015 alone. He also outlined the fund concentration in the U.K. market, revealing that the 60 top U.K. funds contain nearly a quarter of all U.K. fund assets.

Mutual Funds and Portfolio Construction

Richard Philbin, Chief Investment Officer–Wellian Investment Solutions; Haig Bathgate, Joint CIO/ CEO of Tcam; and Mark Harries, a multi-manager specialist participated in the portfolio construction session. The conclusions were broad-ranging, with a good deal of time also spent on discussing the U.K. commercial property sector. Mr. Harries raised concerns about the industry’s predilection to daily marking to market of illiquid asset classes.

Mr. Philbin declared that the active-versus-passive debate needs to have less importance placed on it, with objective-based investing requiring all types of building blocks. Mr. Bathgate discussed the importance boutique fund managers play in his portfolio construction process, stating that many gatekeepers miss out on “formative alpha” as a result.

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(L-R) Jake Moeller, Mark Harries, Haig Bathgate & Richard Philbin. Photo: Detlef Glow

The panel raised the interesting point that fee compression isn’t necessarily a good thing for funds. It is important that quality be differentiated by price. There was also a view that performance based fees still had a place in the market.

Finally, the panel discussed the implications for fixed income in a Brexit-induced “lower for longer” rate environment, concluding that the demand for yield will remain and that fixed income funds need to be considered with a great deal of investor diligence.

An Engaged Audience

Audience participation at the second annual Fund Selectors Forum was exceptionally high, with some particularly passionate points of view being raised throughout the event. At the start of the Forum audience members were encouraged to engage this event via social media, and #LipperFSF16 garnered considerable commentary.

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The Twitter wall proved popular…Photo: Thomson Reuters

The issues raised in this Fund Selectors Forum will no doubt continue to be discussed, and Lipper and the CISI have shown the importance of facilitating such crucial debates.

Challenges as well as opportunities exist in the U.K. market, given the uncertain outlook Brexit provides. We look forward to seeing everyone again next year.


Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Thomson Reuters cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice.

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