European FoFs to see uneven growth as banks push deposits

Europe_mapAssets in the European fund of funds (FoFs) sector could rise nearly 7.5% per year to 2015, though weak distribution in France, Germany and Spain means there  will be marked differences in growth across the EU.

The UK's Retail Distribution Review is already providing sales momentum in the independent financial advice market, says Cerulli Associates, a business consultancy, in its European Funds of Funds 2011 report.

Regulatory change and greater outsourcing to discretionary managers will continue to drive growth across all major markets pushing assets to €673.3 billion by 2015.

But there are marked differences in growth across the EU, says Yoon Ng, the report’s lead analyst. Distribution is to blame for weak sales in France, Germany, and Spain. Where banks are the key distribution channel, their focus on gathering deposits to shore up their own capital, or offering guaranteed funds to ultra conservative investors, is hurting FoF sales.

But there are still plenty of positive opportunities for fund groups and sales teams to latch onto, says Cerulli.

Although balanced FoF portfolios still rule by overall assets, there is a distinct movement towards global equity and emerging market portfolios where FoF managers can regularly outperform their single-manager counterparts.

Funds of passive funds are piling pressure on traditional FoF charging structures, particularly in the UK, where Barclays and Seven Investment Management have built substantial asset bases. Cerulli expects the "fund of ETFs" trend to spread, as German fund houses are already testing the waters.

"The surprise is that so many big groups that offer traditional mutual funds and ETFs have not tackled this market. We're convinced it will be a new battlefield," comments Ng.

The FoF industry is also experiencing the sales polarisation effect seen in the wider fund market over the last two years. Cerulli says big alpha-delivering FoFs are snapping up nearly all the sales, “leaving those without performance records or distribution clout to scrabble for leftovers”.

For single funds considering FoFs as a distribution channel in their own right, identifying drivers of repeatable outperformance is key to making FoF managers take note. European FoF managers tend to look at local funds first, other Ucits or non-European funds second, when making their selections. Only a handful of groups have genuine cross-border appeal.

©2011 funds europe

Assets in the European fund of funds (FoFs) sector could rise nearly 7.5% per year to 2015 – though weak distribution in France, Germany and Spain means there are marked differences in growth across the EU.

The UK's Retail Distribution Review is already providing sales momentum in the independent financial advice market, says Cerulli Associates, a business consultancy, in its European Funds of Funds 2011 report.

Regulatory change and greater outsourcing to discretionary managers will continue to drive growth across all major markets pushing assets to €673.3 billion by 2015.

But there are marked differences in growth across the EU, says Yoon Ng, the report’s lead analyst. Distribution is to blame for weak sales in France, Germany, and Spain. Where banks are the key distribution channel, their focus on gathering deposits to shore up their own capital, or offering guaranteed funds to ultra conservative investors, is hurting FoF sales.

 

But there are still plenty of positive opportunities for fund groups and sales teams to latch onto, says Cerulli.

 

Although balanced FoF portfolios still rule by overall assets, there is a distinct movement towards global equity and emerging market portfolios where FoF managers can regularly outperform their single-manager counterparts.

 

Funds of passive funds are piling pressure on traditional FoF charging structures, particularly in the UK, where Barclays and Seven Investment Management have built substantial asset bases. Cerulli expects the "fund of ETFs" trend to spread, as German fund houses are already testing the waters.

"The surprise is that so many big groups that offer traditional mutual funds and ETFs have not tackled this market. We're convinced it will be a new battlefield," comments Ng.

                                         

The FoF industry is also experiencing the sales polarisation effect seen in the wider fund market over the last two years. Cerulli says big alpha-delivering FoFs are snapping up nearly all the sales, “leaving those without performance records or distribution clout to scrabble for leftovers”.

 

For single funds considering FoFs as a distribution channel in their own