As far as I know there is still no definitive answer, but anecdotally I’m sure we could all come up with evidence in support of the thesis: It could be that you always sit in the same train carriage on the way to work, or have to have the radio set to a certain volume level. (Or is that just me?)
In investing too, people follow familiar patterns and could even be accused of sheep-like behaviour.
Recent data from a whole host of sources supports this theme because while small funds and investment boutiques have been shown to punch above their weight in terms of performance, fund flows show investors are still in favour of what they know and what others like.
At the Lipper Expert Forum in London recently Mauro Baratta, director at Lipper, did a presentation on the latest trends in European mutual fund distribution.
His data showed in the fixed income space that 60% of inflows were concentrated into the biggest 10 fund groups in 2011, compared to 47% in 2009.
The search for stability
In times of uncertainty, and goodness knows fixed income has had a more uncertain time than usual of late, investors clearly lose any bravado they might once have had and grasp at well-known and well-respected names.
Do the industry giants deserve such loyalty, however, or is an investor’s timidity and unwillingness to stand out from the crowd ill-rewarded?
If you drill it down to the fund level, apparently not.
In its quarterly FundWatch Report Thames River Multi-Capital found small funds were more likely to consistently outperform than their larger counterparts.
It said that in two-thirds of IMA sectors funds below the average size were more likely to have outperformed consistently over the last three years, and of the 313 funds across the IMA universe with above-median performance in each of the three years, 61% were smaller than the average fund size of their sector.
Considering the three volatile years markets have just lived through, it’s maybe not surprising that small and nimble funds have shown their worth.
Ironically, of course, if investors cotton onto these funds’ outperformance and flock into them they will grow bigger and lose some of the liquidity that enables them to adapt quickly to changing market conditions.
Big players continue to dominate
On a company basis, 800 asset management firms are active in European equity funds, according to Fitch. But just 13 of those are responsible for a third of all AUM in the region, and the largest 53 companies manage two-thirds of the total AUM in European equities.
Maybe investors and their advisers are not given quite as much credit as they should be, though, or perhaps the tide is turning.
Fitch said that while overall European equity funds experienced net outflows of €12.3bn in the year to July around 38% of asset managers in the sector enjoyed positive net flows during the period.
Of the 30 companies that had the largest net inflows, only 12 were among the 30 largest in terms of AUM and most of the best sellers were "independent asset managers".
Let’s not get too excited though, "independent asset managers" are organisations that are not affiliated with a large bank or building society, so there are still some big names in the hot list.
Time for change?
Habits are renowned for being hard to break – ask a smoker, gambler, chocaholic – and the more ingrained the habit the harder the shackles are to break.
That doesn’t mean we shouldn’t try though.
As the festive season creeps ever closer, I’m going to jump ahead to January 2012 (who likes Christmas anyway) and the inevitable New Year resolution-making.
So here’s one for advisers and investors alike: in the year ahead, which is bound to be fraught with as much uncertainty as the last one, don your blinkers and your ear plugs and try your best to think outside the investment box, it could lead to a pleasant surprise.
