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Forget RDR, the big risk is concentrated buy lists
by Danielle Levy on Oct 29, 2013 at 14:26
Liontrust Macro Equity Income managers Jan Luthman and Stephen Bailey believe investors are wrong to focus solely on the prospect of margin compression in asset management post-RDR, arguing the real trend to watch is the centralisation of buy lists.
The duo remain bullish on the sector despite the pricing negotiations currently taking place between large platforms and fund groups ahead of new RDR platform rules that come in next year. They say the commonality and move to centralise recommended fund buy lists in the sector has much more significant implications for fund management businesses.
‘For me, the risk to the industry is not the RDR itself. It is the business of having a centrally approved list, which is really hardening. There is a risk in my view that over the next two to three years we could see that strict adherence to a central list and the commonality in these lists could result in greater concentration in funds. You could see quite a number of funds decide “hey, this is not worth it”,’ Luthman said.
While the move towards larger funds could kill some smaller funds and start-ups, he expects some of the large listed firms will benefit as they are likely to have a coveted place on buy lists.
‘Margin compression or fee compression as a result of the RDR to me is a red herring. The real issue is the compression of choice,’ Luthman added.
On the margin compression threat, Bailey pointed out that recent results from Jupiter and Polar Capital showed both groups have so far defended and maintained their margins.
Elsewhere in the portfolio, the duo has sold out of consumer staples completely, which formerly represented a 15% weighting in the fund, on the back of concerns that the sector was starting to look overvalued with question marks over earnings growth. They have exited positions in PepsiCo, Unilever and Reckitt Benckiser.
‘I would argue that you want to be holding value stocks when they become growth stocks. BT is a good example of that,’ Bailey explained.
The rise of challenger banks in the UK represents another theme they are seeking to play through holdings in Sainsbury’s, where they anticipate Sainsbury’s Bank will become a growth area, alongside Paragon, which is applying for a banking licence.
Over the past three years, Liontrust Macro Equity Income, which is a Citywire Selection pick, has posted a 35.4% return versus a 33.4% rise by the FTSE All-Share index, according to Lipper. The fund has a historic yield of 3.1%.
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- Polar Capital Holdings PLC (POLR.L)
- Aberdeen Asset Management PLC (ADN.L)
- Jupiter Fund Management PLC (JUP.L)
- Henderson Group PLC (HGGH.L)
- Unilever PLC (ULVR.L)
- Reckitt Benckiser Group PLC (RB.L)
- J Sainsbury PLC (SBRY.L)
- Paragon Group Ltd (48QW.L)
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On the road
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