Investors turn to small boutiques for wealth management
Investors are rejecting large fund managers and turning to small boutiques to handle their wealth because they are more nimble and quicker to react to the twists and turns of the market.
About 41 per cent of wealth managers and multi managers expect to increase their asset allocation to boutiques over the next 12 to 18 months, according to research by fund distribution company Harrington Cooper.
The survey conducted among 80 wealth managers and multi managers in the UK in September and October also found that only 23 per cent expect to increase the percentage of their assets in passive funds, or those that track the market.
Wealth managers hold only between 1 per cent to 10 per cent of their total assets in passive funds. Ninety-four per cent invest up to half of their total fund assets in boutiques.
However, despite these findings, other research has found that passive funds have become more popular with investors in the past two years as these groups have slashed their fees, while many active managers are underperforming.
Bank of America Merrill Lynch found in research, published last week, that fewer than one in five active mangers beat the market this year in the US equity space. This is the worst performance since 2003 when BofA first started gathering the data.
The BofA data covered all US large company equity funds, including those tilted towards value stocks or growth companies, that are actively managed. Only 17.7 per cent are beating the Russell 1000 index of large-cap stocks so far this year. That compares with 40.5 per cent for 2013 as a whole.
Active managers have struggled this year because very large companies have outperformed, which makes it harder for active managers to generate returns above the market.
This is because active managers tend to have a bias towards smaller companies. They find it harder to build up overweight positions, or increase their allocations in stocks of very large companies above that of the index, because of the size of these groups.
The difficulties of the large company US equity funds contrasts with support among some wealth managers for allocating to boutiques.
Key reasons for allocating to boutiques include: The belief the interests of investors and the fund manager are more aligned within boutiques owing to their small size and the view that they are better placed to deliver returns in excess of the market because they tend not to try and replicate the index they are benchmarked to.
Some investors warn that small boutiques do not have the ability to diversify like their bigger rivals. The concentration of their portfolios in certain asset classes or regions can also lead to big losses, if those particular assets or regions underperform.