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Collective Investments - UK - August 2009

After a tough 2008, gross and net new sales of collective investment funds have experienced a recovery in 2009, with the second quarter net retail sales figure the highest on record at £7.4 billion. A major contributor to this growth has been the improvement in investor confidence which has resulted in the recent rebound in stock market performance early in the year. Low inflation and interest rates have also played their part, with the former helping to ease pressure on personal budgets and the latter causing investors to seek out higher returns.

While conditions have certainly improved in recent months it is important to keep things in perspective. The investment climate is still very fragile with investor sentiment still considerably below pre crisis levels. At the time of writing, the UK economy is still in recession, unemployment is still on the rise and prospects for recovery remain hazy. Additionally, with the government borrowing heavily to provide stimulus for the economy during the crisis, both tax and interest rates will eventually have to rise. Even if the UK emerges from recession by the third quarter all this is likely to hinder the pace of economic recovery, and possibly result in disappointing investment returns.

This report explores the key developments taking place in the collective investment market, ranging from wider demographic and economic trends to industry-related regulatory developments such as the RDR and EU UCITS directives. The Market Size section highlights changes and potential for growth in the market, while the Market Share section shows how the financial crisis has affected the key players in the market. The final sections of the report present the findings of Mintel’s exclusive consumer research. Here the reader is provided with valuable insight into the attitudes and behaviours of UK consumers towards long-term investment products such as collectives.

Key issues

  • The recession and uncertainty about the pace of economic recovery make for a very fragile investment environment.

  • In general consumers show a high preference for low risk, secure cash based savings and investment products such as Cash ISAs and NS&I products.

  • In addition to risk aversion the lack of available funds and insufficient knowledge are other major obstacles preventing many from investing in products like collectives.

  • The RDR continues to advance but some aspects of its future development are being clouded by the general election in 2010 which is likely to see a new party come to power.

  • The tax efficiency of Stocks and Shares ISA is overstated as investors are unable to reclaim the 10% tax on dividends, while the CGT threshold is so high that many are unlikely to be hit by the tax.

  • The credit crunch has resulted in certain providers losing a large amount of market share although the ISA segment market has been less affected.

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Table of contents

  1. Issues in the Market

      • Key issues
        • Abbreviations
          • Advertising data
          • Future Opportunities

            • ‘Influentials’ can play a key role in generating new business
              • Be your own advisor with retail investor friendly fund supermarkets
                • Putting the focus on the real rate of return
                  • RDR and UCITS should help reduce churn
                  • Market in Brief

                    • New sales on the rise in 2009
                      • Figure 1: Net retail sales of UK-domiciled unit trusts/OEICs, 1999-2009
                    • Low interest rates and rise in the stock market help boost demand
                      • Internal Market Environment and Regulatory Environment
                        • Intermediaries play the key role in distribution
                          • Figure 2: Proportion of unit trust/OEIC gross retail sales, by distribution channel, 2005-09 (Q2)
                        • Credit crunch leads to market share shake-up
                          • Promotional activity has been tamed by financial crisis
                            • Key consumer research findings
                              • Investment ownership
                                • What consumers are looking for in a long-term investment
                                  • Attitudes towards risk
                                    • Sources of advice
                                    • Internal Market Environment

                                      • Key points
                                        • Investor sentiment improving but still fragile
                                          • Figure 3: Intended purchases of shares and equity-based unit trusts, government and corporate bonds and bond-based unit trusts and sales of equities and unit trusts, Q3/Q4 2002-Q3/Q4 2009
                                        • Investors are generally risk-averse
                                          • Figure 4: Attitudes towards risk, April 2009
                                        • Affordability and sufficient knowledge also prominent barriers
                                          • Figure 5: Barriers to buying shares or other stockmarket-based investments, April 2009
                                        • Regulatory environment
                                          • The Retail Distribution Review
                                            • Tories refuse to commit to RDR deadline
                                              • Impact of the 18% flat rate of CGT
                                                • Tax relief on equity ISAs not all it’s hyped up to be
                                                  • 10% tax credit must be reinstated to make ISAs truly tax-free
                                                    • EU – UCITS Directives promote a more competitive marketplace
                                                      • Tax Elected Funds (TEF) legislation
                                                        • Positive impact of MiFID at the upper end of the market for advice
                                                        • Broader Market Environment

                                                          • Key points
                                                            • Uncertain economic conditions cloud expectations
                                                              • Collectives and stock market performance
                                                                • Figure 6: FTSE 100 and FTSE All Share – daily index movements, June 2003-June 2009
                                                              • All-time-low base rate should help boost risk appetite
                                                                • Figure 7: Monthly changes in the rate of annual inflation* and Bank of England base rate – UK, June 2002-June 2009
                                                              • Inflation considerations
                                                                • More focus should be put on the real rate of return
                                                                  • Demographic trends favour growth in demand
                                                                    • Figure 8: Socio-demographic composition of United Kingdom population, 1994-2014
                                                                • Competitive Context

                                                                  • Key points
                                                                    • Collective investment alternatives
                                                                      • Figure 9: Penetration of savings and investment products, April 2009
                                                                    • Cash ISA subscriptions increase while equity ISA subscriptions fall
                                                                      • Figure 10: Number of ISA accounts and amounts subscribed, segmented by type, 1999-2000-2008/09
                                                                    • NS&I has benefited from a flight to safety
                                                                      • Figure 11: Amounts invested in NS&I annually and total funds held, 2003/04-2008/09
                                                                    • Personal pensions compete for individuals’ funds
                                                                      • Figure 12: New APE* individual pension premiums, by product type, 2003-08
                                                                    • Direct equity holdings on the decline
                                                                      • Investment bonds
                                                                        • Figure 13: Total number of new single-premium investment bond contacts and value of new premiums, 2002-08
                                                                      • Buy-to-let loses its appeal as house prices decline
                                                                      • Strengths and Weaknesses in the Market

                                                                          • Figure 14: Collective Investments – SWOT analysis, 2009
                                                                      • Who’s Innovating?

                                                                        • Key points
                                                                          • Innovation is cyclical, and fund-driven
                                                                            • Absolute return funds see a flurry of activity…
                                                                              • … and encouraging level of new sales
                                                                                • An emphasis on security…
                                                                                  • … with some taking an innovative approach
                                                                                    • A return to split capital trusts?
                                                                                      • Platinum 120 Funds range endeavors to give retail investors a head start
                                                                                        • Recent investment fund activity
                                                                                          • Friends provident adds funds designed to take advantage of volatility
                                                                                            • New Investec fund focuses on capital protection
                                                                                              • LV= launches three funds targeted at diverse risk profiles
                                                                                                • Low-charging Vanguard launches 11 tracker funds in the UK
                                                                                                  • HSBC slashes Index tracking fund fees and eliminates commission
                                                                                                    • The continued rise of ETFs
                                                                                                      • HSBC jumps into the European ETF market
                                                                                                      • Trade Perspective

                                                                                                          • The effects of the financial crisis
                                                                                                            • Credit Crunch means less innovation
                                                                                                              • Relationship with IFAs
                                                                                                                • Collectives and this year’s ISA season
                                                                                                                  • Increase in annual ISA limits welcomed but poorly executed
                                                                                                                    • What to expect in the ISA market going forward
                                                                                                                    • Market Size and Forecast

                                                                                                                      • Key points
                                                                                                                        • Gross retail sales back up in 2009
                                                                                                                          • Figure 15: Gross retail sales of UK-domiciled unit trusts/OEICs, 1999-2009
                                                                                                                        • Net retail sales recovery
                                                                                                                          • Figure 16: Net retail sales of UK-domiciled unit trusts/OEICs, 1999-2009
                                                                                                                        • The ISA season boost in retail sales
                                                                                                                          • Figure 17: Gross and net ISA sales of unit trusts and OEICs, April 2007-June 2009
                                                                                                                        • Collectives the main investment held in stocks and share ISAs
                                                                                                                          • Figure 18: Market value of ISA funds, stocks and shares component, as of 5 April 2008, by type of qualifying investment, 2004-08
                                                                                                                        • Asset allocation – equities playing a lesser role
                                                                                                                          • Figure 19: UK-domiciled funds under management, by asset class, 2004-08
                                                                                                                        • Forecast
                                                                                                                          • Gross retail sales set for further growth
                                                                                                                            • Figure 20: Forecast of gross retail sales of UK domiciled unit trusts/OEICs, 2004-14
                                                                                                                          • Passively managed funds pose a competitive threat
                                                                                                                            • Factors incorporated
                                                                                                                            • Market Share

                                                                                                                              • Key points
                                                                                                                                • Retail and private client funds under management
                                                                                                                                  • Figure 21: Retail and private client funds under management (minimum lump sum is less than or equal to £50,000), by fund manager, June 2008 and 2009
                                                                                                                                • Retail funds under management
                                                                                                                                  • Figure 22: Retail funds under management (minimum lump sum is less than or equal to £10,000), by fund manager, June 2008 and 2009
                                                                                                                                • Market share in the ISA market holds steady with Fidelity at the top
                                                                                                                                  • Figure 23: UK ISA funds under management, June 2008 and 2009
                                                                                                                              • Companies and Products

                                                                                                                                • Major players
                                                                                                                                  • FIL Investment Management Limited
                                                                                                                                    • Invesco Perpetual
                                                                                                                                      • Jupiter Unit Trust Managers Limited
                                                                                                                                        • M&G Securities Limited
                                                                                                                                          • Threadneedle Investment Services Ltd
                                                                                                                                            • Key fund supermarkets
                                                                                                                                            • Brand Communication and Promotion

                                                                                                                                              • Key points
                                                                                                                                                • Advertising spend down nearly a third in the year to April 2009
                                                                                                                                                  • Figure 24: Collective investment advertising expenditure, by sub-category, 2005-09
                                                                                                                                                • F&C and Invesco responsible for a third of total adspend
                                                                                                                                                  • Figure 25: Advertising expenditure, by the top ten collective investment advertisers, 2008 and 2009
                                                                                                                                                • Most advertising goes through the press and direct mail
                                                                                                                                                  • Figure 26: Collective investment advertising expenditure, by media type, 12 months to April 2009 
                                                                                                                                              • Channels to Market

                                                                                                                                                • Key points
                                                                                                                                                  • Intermediaries primary distribution channel
                                                                                                                                                    • Figure 27: Proportion of unit trust/OEIC gross retail sales, by distribution channel, 2005-09 (Q2)
                                                                                                                                                  • Fund supermarkets play a major role in fund selection
                                                                                                                                                    • Over 40% of sales within ISAs via fund supermarkets
                                                                                                                                                      • Figure 28: Proportion of unit trust/OEIC ISA sales, by distribution channel, 2005-09 (Q2)
                                                                                                                                                  • The Consumer – Investment Ownership

                                                                                                                                                    • Key points
                                                                                                                                                      • A strong preference for low risk savings and investments
                                                                                                                                                          • Figure 29: Investment ownership, April 2009
                                                                                                                                                        • Investment ownership jumps significantly after 35
                                                                                                                                                          • Figure 30: Savings and investment products owned, by age, April 2009
                                                                                                                                                        • Positive link between affluence and investment ownership
                                                                                                                                                          • Figure 31: Savings and investment products owned, by gender and socio-economic group, April 2009
                                                                                                                                                        • Personal wealth the main factor in investment ownership
                                                                                                                                                          • Figure 32: Savings and investment products owned, by level of investible assets, April 2009
                                                                                                                                                      • The Consumer – What Consumers Are Looking For in a Long-term Investment

                                                                                                                                                        • Key points
                                                                                                                                                          • Capital preservation and proven success top priorities
                                                                                                                                                              • Figure 33: Important factors when choosing a long-term investment, April 2009
                                                                                                                                                            • Engagement with long-term savings and investing increases with age
                                                                                                                                                              • Figure 34: Important factors when choosing a long-term investment, by gender and age, April 2009
                                                                                                                                                            • Affluent demand more...
                                                                                                                                                              • Figure 35: Important factors when choosing a long-term investment, by socio-economic group, April 2009
                                                                                                                                                            • ... and are most likely to consider tax benefits
                                                                                                                                                              • Figure 36: Important factors when choosing a long-term investment, by gross annual household income, April 2009
                                                                                                                                                          • The Consumer – Attitudes Towards Risk

                                                                                                                                                            • Key points
                                                                                                                                                              • An overall low risk threshold
                                                                                                                                                                • Figure 37: Attitudes towards risk, April 2009
                                                                                                                                                              • Risk tolerance tends to match up with product owned
                                                                                                                                                                • Figure 38: Product ownership, by attitudes towards risk, April 2009
                                                                                                                                                              • A small number of investors likely unaware of their exposure to risk
                                                                                                                                                                • Willingness to take on risk decreases with age
                                                                                                                                                                  • Figure 39: Attitudes towards risk, by gender and age, April 2009
                                                                                                                                                                • More affluent have higher risk tolerance levels
                                                                                                                                                                  • Figure 40: Attitudes towards risk, by socio-economic group and gross annual household income, April 2009
                                                                                                                                                              • The Consumer – Sources of Advice

                                                                                                                                                                • Key points
                                                                                                                                                                  • Banks, building societies and IFAs top sources of investment advice
                                                                                                                                                                      • Figure 41: Source of financial advice, April 2009
                                                                                                                                                                    • Word of mouth an under-rated way to generating new business
                                                                                                                                                                      • Owners of riskier investments turn to IFAs for advice
                                                                                                                                                                        • Figure 42: Product ownership, by source of financial advice, April 2009
                                                                                                                                                                      • Advice and risk tolerance
                                                                                                                                                                        • Figure 43: Source of financial advice, by attitudes towards risk, April 2009
                                                                                                                                                                      • Professional advice becomes increasingly prevalent as one ages
                                                                                                                                                                        • Figure 44: Source of financial advice, by gender and age, April 2009
                                                                                                                                                                      • The growing influence of the internet
                                                                                                                                                                        • Wealthy consult professionals as well as friends and family
                                                                                                                                                                          • Figure 45: Source of financial advice, by socio-economic group and gross annual household income, April 2009
                                                                                                                                                                      • The Consumer – Targeting Opportunities

                                                                                                                                                                        • Key points
                                                                                                                                                                          • Key target groups
                                                                                                                                                                            • Figure 46: Long-term saving and investing target groups, April 2009
                                                                                                                                                                          • Safe and Secure
                                                                                                                                                                            • Can’t afford it
                                                                                                                                                                              • Savvy and Demanding
                                                                                                                                                                                • Unresponsive
                                                                                                                                                                                  • The Safe and Secure can be targeted with cautious funds
                                                                                                                                                                                    • Figure 47: Target groups, by product ownership, April 2009
                                                                                                                                                                                  • Target group attitudes to risk and the importance of investor education
                                                                                                                                                                                    • Figure 48: Target groups, by attitudes towards risk, April 2009
                                                                                                                                                                                  • Savvy and demanding more likely to seek professional advice
                                                                                                                                                                                    • Figure 49: Target groups, by source of financial advice, April 2009
                                                                                                                                                                                  • High-earners populate the Savvy and Demanding group
                                                                                                                                                                                    • Figure 50: Target group, by demographics, April 2009
                                                                                                                                                                                • Appendix – Market Background and Definitions

                                                                                                                                                                                    • Investment risk
                                                                                                                                                                                      • Figure 51: Risk profile of selected savings and investments
                                                                                                                                                                                    • Collective investment types
                                                                                                                                                                                      • Fund supermarkets
                                                                                                                                                                                      • Appendix – The Consumer – Investment Ownership

                                                                                                                                                                                          • Figure 52: Most popular ownership of select savings and investment products, by demographics, April 2009
                                                                                                                                                                                          • Figure 53: Next most popular ownership of select savings and investment products, by demographics, April 2009 (continued)
                                                                                                                                                                                      • Appendix – The Consumer – What Consumers Are Looking For in a Long-term Investment

                                                                                                                                                                                          • Figure 54: Product ownership, by important factors when choosing a long-term investment, April 2009
                                                                                                                                                                                          • Figure 55: Most popular important factors when choosing a long-term investment, by demographics, April 2009
                                                                                                                                                                                          • Figure 56: Next most popular important factors when choosing a long-term investment, by demographics, April 2009 (continued)
                                                                                                                                                                                      • Appendix – The Consumer – Attitudes Towards Risk

                                                                                                                                                                                          • Figure 57: Attitudes towards risk, by demographics, April 2009
                                                                                                                                                                                      • Appendix – The Consumer – Sources of Advice

                                                                                                                                                                                          • Figure 58: Preferred sources of investment advice, by demographics, April 2009
                                                                                                                                                                                      • Appendix – The Consumer – Targeting Opportunities

                                                                                                                                                                                          • Figure 59: Target group, by demographics, April 2009

                                                                                                                                                                                      Companies Covered

                                                                                                                                                                                      • Aberdeen Asset Management PLC
                                                                                                                                                                                      • Alliance Trust Savings Ltd
                                                                                                                                                                                      • AMP (UK) Plc
                                                                                                                                                                                      • Arena BLM
                                                                                                                                                                                      • Artemis Investment Management
                                                                                                                                                                                      • Asda Group Ltd
                                                                                                                                                                                      • Association of British Insurers
                                                                                                                                                                                      • Aviva Plc
                                                                                                                                                                                      • Bank of England
                                                                                                                                                                                      • Bank of New York Mellon Corporation, The
                                                                                                                                                                                      • Barclays Global Investors
                                                                                                                                                                                      • Barclays Stockbrokers Limited
                                                                                                                                                                                      • BlackRock, Inc.
                                                                                                                                                                                      • Capita Insurance Services
                                                                                                                                                                                      • Co-operative Group
                                                                                                                                                                                      • Co-operative Insurance Society Ltd
                                                                                                                                                                                      • Cofunds
                                                                                                                                                                                      • Council of Mortgage Lenders
                                                                                                                                                                                      • Crédit Agricole
                                                                                                                                                                                      • Delaney Lund Knox Warren & Partners Ltd
                                                                                                                                                                                      • Department for Work and Pensions
                                                                                                                                                                                      • F&C Management Limited
                                                                                                                                                                                      • Fidelity Investment Services Limited
                                                                                                                                                                                      • Financial Services Authority (The)
                                                                                                                                                                                      • First State Investments
                                                                                                                                                                                      • Freeview
                                                                                                                                                                                      • Friends Provident plc
                                                                                                                                                                                      • Fundsdirect
                                                                                                                                                                                      • Gartmore Investment Management plc
                                                                                                                                                                                      • Gfk NOP
                                                                                                                                                                                      • Grupo Santander Central Hispano S.A.
                                                                                                                                                                                      • Hargreaves Lansdown Plc
                                                                                                                                                                                      • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                                                                      • Henderson Global Investors
                                                                                                                                                                                      • HSBC Investments (UK) Limited
                                                                                                                                                                                      • Invesco Perpetual
                                                                                                                                                                                      • Investment Management Association
                                                                                                                                                                                      • ITV plc
                                                                                                                                                                                      • John Gilbert Financial Research
                                                                                                                                                                                      • JPMorgan Chase & Co
                                                                                                                                                                                      • JPMorgan Invest LLC (BrownCo)
                                                                                                                                                                                      • Jupiter Asset Management Limited
                                                                                                                                                                                      • Jupiter Unit Trust Managers Ltd
                                                                                                                                                                                      • Landsbanki Islands Ltd
                                                                                                                                                                                      • Legal & General Investment Management
                                                                                                                                                                                      • Lehman Brothers [UK]
                                                                                                                                                                                      • London Stock Exchange plc
                                                                                                                                                                                      • LV=
                                                                                                                                                                                      • M&G Group
                                                                                                                                                                                      • Market & Opinion Research International (MORI)
                                                                                                                                                                                      • Merchant Investors Assurance
                                                                                                                                                                                      • National Savings & Investments
                                                                                                                                                                                      • New Star Asset Management Ltd
                                                                                                                                                                                      • Office for National Statistics
                                                                                                                                                                                      • Outdoor Advertising Association of Great Britain
                                                                                                                                                                                      • Prudential plc
                                                                                                                                                                                      • Scottish Widows Investment Partnership Ltd
                                                                                                                                                                                      • Selftrade Investments
                                                                                                                                                                                      • Skandia UK
                                                                                                                                                                                      • St James' Place Plc
                                                                                                                                                                                      • Standard Chartered
                                                                                                                                                                                      • Standard Life Investments
                                                                                                                                                                                      • TD Waterhouse
                                                                                                                                                                                      • The Share Centre
                                                                                                                                                                                      • Threadneedle Investment Services Ltd
                                                                                                                                                                                      • Triodos Bank
                                                                                                                                                                                      • Virgin Money
                                                                                                                                                                                      • Yellow Pages Association
                                                                                                                                                                                      • Zurich Financial Services

                                                                                                                                                                                      Collective Investments - UK - August 2009

                                                                                                                                                                                      £1,995.00 (Excl.Tax)