UK fixed income managers have responded with differing tactics to the continuing growth in assets under management, says S&P Capital IQ in its latest sector trends paper.
Assets under management continue to grow as investors search for yield in an environment of low interest rates. According to IMA data, UK fixed income assets have increased by around 11.5 per cent annually in the period from June 2009 to June 2012.
One of the major beneficiaries has been M&G: Richard Woolnough’s Strategic Corporate Bond and Corporate Bond funds held GBP5.16bn and GBP6.31bn, respectively, as at the end of June. In the summer, Woolnough became concerned that further asset growth would start to limit his ability to manage the portfolios most effectively. However, he was not concerned about liquidity; he was more concerned with the ability to add value through stock selection. M&G has tried to limit flows into these funds by persuasion rather than closing the vehicles.
Invesco Perpetual has made no such move for Paul Read and Paul Causer’s Corporate Bond Fund, which held GBP5.5bn as at the end of June. The managers feel their investment process is successful in both large and small funds. As contrarian investors, they have been able to find liquidity when needed, and funded their recent redemptions smoothly.
Naturally in the competition for assets, many smaller fund managers said they would not feel comfortable managing such large amounts of money as this in the current environment.
Meanwhile, UK managers are increasingly taking advantage of relative value opportunities thrown up by volatile markets by buying non-sterling issues. This has the advantage of diversifying the liquidity risk.