Industry divided over frantic pace of product launches

Last week Schroders announced its third new product in under a month, confirming that it would launch the ISF European Total Return fund for Nicholette MacDonald-Brown on March 7.

Earlier in February the asset manager unveiled the Schroder Strategic Bond fund for Gareth Isaac and Schroder Small Cap Discovery fund for Matthew Dobbs.

Meanwhile, 37 new retail products – not including the three from Schroders – have been registered with Morningstar since the start of 2012.

The sheer pace with which new retail funds are developed and launched is a divisive subject in the asset management world. Supporters argue it is necessary to maintain a high rate of innovation, while the detractors say providers do not spend enough time on their existing ranges.

Data from Lipper shows that 2,978 funds were launched across the European asset management industry in 2011. The figure for 2012 is likely to be higher as sentiment improves and the launches that were shelved last year are brought back to the table. (News analysis continues below)

Philippa Gee, the managing director of Philippa Gee Wealth Management, argues there are too many new products at a time when asset managers should be working to add value for the clients they already have. “There are literally thousands of funds, many of which are mediocre, and what really irritates me is fund managers seem to concentrate more on launching new products than sorting out those that already exist,” she says.

Devoting the money and manpower used on constant fund launches to turning around badly performing portfolios would be better for investors, says Gee, although she understands why some firms choose not to do this. “While the client and their adviser’s focus is on the client, the fund manager’s focus is not at all external – it’s completely on their own profit level,” she adds.

Phillippa Gee
Phillippa Gee

Paul Truscott, the regional head of product development for UK and Europe at Schroders, however, notes the rigorous development processes that are followed at asset management houses.

Schroders uses an eight-stage product development process, part of which ensures the launch of a fund will not take resources away from those already in operation. Truscott says that by far the bulk of the business is dedicated to running its present range, while his team’s time is divided equally between investigating new propositions and ensuring existing products remain fit for purpose.

Figures from Lipper highlight the role fund launches have played in the European fund management industry. About 22% of assets are held in products that have opened in the past five years, and Lipper claims the industry would have contracted by 7% without the launches of the past 10 years.

The need for asset managers to develop new products reflecting the changes in the wider financial services industry is recognised by Stuart Alexander, the managing director of Gemini Investment Management. “If the fund industry hadn’t been innovative for the last 25 years, we’d still be sat here just selling UK growth and maybe European growth funds,” he asserts.

Alexander says a good example of how consistent fund launches can improve conditions for investors is seen in changes in the credit space over the past 25 years. Until an appropriate corporate bond index was developed, investors were limited to gilt funds. Once a suitable benchmark emerged, their choice was widened as more products were opened to give exposure to corporate bonds.

Gary Potter, the co-head of multi-manager at Thames River Capital, says the pace of change caused by factors such as the evolution of the asset management industry, the move towards income or globalisation mean “there is always appetite for new thoughts”.

He says launches of recent years that have added something of merit include Luke Chappell’s BlackRock UK Focus fund, Jacob de Tusch-Lec’s Artemis Global Income fund and the Schroder Maximiser range.

However, Potter adds: “One thing with launches that I do have a problem with is they tend to come at the end of a decent performance period for that asset class. If you see a bandwagon, you’ve probably missed it.”

Gary Potter
Gary Potter

All these commentators agree that developing funds to keep up with competitors’ ranges or current trends – the “me too” launches – is an undesirable feature of today’s industry.

Alexander says so-called fund farming can be detrimental to the industry and calls on firms to develop products in response to investors’ needs rather than rivals’ ranges.

Potter adds: “There’s no doubt that income is going global, but how many more global income funds can the industry stand? Prob­ably not many, because there are plenty of good ones out there. There’s almost too much choice.”

Figures from Lipper suggest that under Britain’s advisory model new launches in this country have more difficulty attracting assets than those in the European market, which tends to be more business-to-consumer.

Some £92 billion, or 16.5%, of the £556.6 billion managed by British-domiciled mutual funds is found in products launched in the past five years. This is because advisers are more wary of putting their clients in portfolios that lack track records.

Despite this, Gee maintains that too many investors commit money to funds that are launched on the back of a trend. “If you’re a fund manager whose entire fund range is consistently exceptional … then a new fund launch that is an interesting and useful addition has an element of merit to it,” she says. “But when you’re not delivering and just bringing out another ’me too’ product, then I don’t want to know.”