Firstly, it calls into question their fund selection methods and indicates there might be more of a herd mentality than advisers or wealth managers would care to admit.
This trend is even more starkly shown by the full year statistics from 2011, as the European industry suffered net outflows, meaning the ten best-selling funds could claim to have generated greater inflows than all other funds combined.
Secondly, this trend of allocating to the best-selling funds (when taken as a percentage of all fund flows) has by and large been on the increase since 2003, which suggests fund buyers are seeking safety in numbers even more than before.
Winner takes all
Ed Moisson, head of UK and cross border research for Lipper, who compiled the data, said: “While the overall trend is broadly of an increasing concentration of sales into the best-selling funds, it is worth noting that in 2007, 2008 and 2011 the industry suffered net outflows so it is not possible to present the relevant proportions in this chart.
“It seems highly likely that a greater awareness of the ‘winner takes it all’ phenomenon has come about of late as more groups have struggled to generate inflows at all,”
Taking the asset managers’ point of view, Moisson said the figures do go some way to explain why fund groups continue to launch new funds.
“This is an issue that comes up in the UK specifically as well – do people need to keep on launching new funds. When the [asset managers] see the sheer scale of money that goes into the best funds, such as Standard Life Gars or Newton Real return, they think we need a similar product to try and tap into some of that money as well.”
Moisson’s view is directly opposed to the common claim from fund houses that they do not wish to launch “me too” products.
He said the sheer amount of assets going into the most successful funds encourages product development teams to think they cannot afford to miss out on these levels of inflows.
‘Me too’ or ‘me similar’?
“Perhaps they are ‘me similar’ rather than ‘me too’ funds,” he said.
The concern here is that innovation will be lost and funds will be launched purely to bandwagon on the success of others.
A counter argument to this is that at least in those asset classes that are “market place friendly” there will be stiff competition among the asset managers.
But whatever happened to first-mover advantage – both from the fund pickers and the asset managers?
Moisson said it would take a brave asset manager to launch a fund that goes against the tide and then put the weight of its marketing department behind it.
As for fund buyers, perhaps there is an acknowledgement that it will be easier to justify choices to the FSA if they are not too outlandish? Or maybe there is a fear of being too contrarian in case it comes back to bite them in the bum.
Do you find yourself allocating to the better known and best-selling funds? Is this because they are seen as a safe bet or because you genuinely think those asset classes/managers will perform the best for your clients? Use the comments box below…
