There are many reasons why wealth managers may want to wrap portfolios into a unitised/fund structure: an expanded investment universe, simpler distribution, streamlined reporting, better control of charges and fewer CGT headaches.
But unitised portfolios have been the poor relatives of platform MPS in recent years, as our UK Wealth Management: Investment Distribution report shows. Net flows for wealth managers’ unitised portfolios were negative between 30 June 2023 and 30 June 2024.
Our research sizes the fund-of-fund ranges of UK wealth managers at £80bn at the end of June 2024. While assets have increased, this was only due to investment performance – net flows were negative over the previous 12 months.
One charge levied against funds-of-funds is their high pricing. Many active funds-of-funds run by wealth managers cost more than active model portfolios. But passive funds-of-funds are priced more competitively relative to their MPS equivalents. This may explain why passive funds-of-funds enjoyed net inflows over the period we analysed.
Passive funds also feature heavily in the underlying investments used within wealth managers’ funds-of-funds, even funds-of-funds marketed as active. BlackRock/iShares makes an appearance in 86% of the 351 funds-of-funds analysed in our research, followed by Vanguard and LGIM.
Wealth managers’ fund-of-fund flows could be reinvigorated as capital gains tax rises up the agenda. But the product price must be right.
We recently published our UK Wealth Management :Investment Distribution report. For more information, please get in touch.