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Collective Investments - UK - July 2010

2009 was a much better one for the investment management industry. Demand for unit trust and OEICs picked up strongly during the second half, with gross retail sales for the whole year up by nearly a quarter. Funds under management rose by a third during 2009, reflecting an improvement in global stock markets and renewed investor confidence. The investment trust sector similarly managed strong growth in total assets under management and market capitalisation.

  • A fresh wave of volatility during the second quarter of 2010 has undermined the recent recovery in the global stockmarkets, which had led to a strong increase in retail unit trust and OEIC sales in 2009.
  • Intermediaries dominate the sale of unit trusts and OEICs, but are accused of “overlooking” investment trusts. RDR changes should address this and create a more level playing field.
  • Collective investments are held by 6% of UK adults – although the proportion is higher since collectives represent nearly three quarters of the funds held in equity ISAs and 14% of UK adults have one of these.
  • The typical ‘collective investor’ is a male AB, who is either approaching or already in retirement. There is significant scope to improve take-up among women and the younger age groups.
  • Most people have a definitive reason to save or invest, the most common of which is to ensure their own financial security by building up a ‘rainy day’ or emergency fund (51%).
  • There are significant professional advice gaps in this market, with almost a quarter (24%) of collective investors saying that they rarely or never take expert advice and a fifth (19%) wary of doing so.

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Table of contents

  1. Issues in the Market

      • Key issues
        • Market definitions
          • Other useful terms
              • Figure 1: Key characteristics of the three main types of collective investment
            • Abbreviations
            • Future Opportunities

              • The rise of behavioural economics
                • The role of emotion in financial decision-making
                  • Security often takes precedence over the level of return
                    • People often need a nudge in the right direction
                      • Less is more
                        • No Middleman
                          • DIY investing
                          • Market in Brief

                            • The open-ended sector is much larger than the close-ended by AUM
                              • Fund performance and retail demand both improved during 2009
                                • Market outlook – tough conditions suggest cautious optimism
                                  • Macroeconomic and investment backdrop
                                    • Wider market context
                                      • Regulatory developments
                                        • Recent market innovation
                                          • Leading fund managers
                                            • Distribution trends
                                              • Advertising activity
                                                • The key findings of Mintel’s consumer research: product ownership
                                                  • The main reasons for saving
                                                    • Investment engagement and advice
                                                      • Attitudes towards risk and investment interest
                                                      • Internal Market Environment

                                                        • Key points
                                                          • Investment conditions
                                                            • Renewed investor confidence during 2009…
                                                              • …but undermined by troubles in the eurozone in first half of 2010
                                                                • Investors are cautious, but not put off equities entirely
                                                                  • Figure 2: Intended equity buying and selling indices, Q3/Q4 2002- Q2/Q3 2010
                                                                • Regulation update
                                                                  • New government, new banking reform
                                                                    • Tax reform
                                                                      • RDR will go ahead under new regulatory structure
                                                                        • New rules introduce new fee-charging structures
                                                                          • Implications for fund managers
                                                                            • Implications for investment trusts
                                                                              • UCITS IV
                                                                                • AIFMD – creating a ‘harmonised framework’ or ‘regulatory overkill’?
                                                                                  • Other recent regulatory developments
                                                                                  • Broader Market Environment

                                                                                    • Key points
                                                                                      • Economic backdrop – uncertainty reigns
                                                                                        • Figure 3: Total GDP, at current prices, 2006-13
                                                                                      • European debt crisis could undermine the recovery in the UK…
                                                                                        • …and has unsettled the markets
                                                                                          • Figure 4: FTSE 100 and FTSE All Share – daily index movements, June 2001-June 2010
                                                                                        • Confidence remains firmly in negative territory
                                                                                          • Figure 5: GfK Consumer Confidence Barometer – UK, January 1988-June 2010
                                                                                        • Savings ratio increased to 7% in 2009
                                                                                          • Figure 6: Total PDI, consumer expenditure and savings, at current and constant 2010 prices, 2006-13
                                                                                        • Hedging for tomorrow’s rise in inflation
                                                                                          • Figure 7: Average annual changes in the Bank of England base rate, CPI and RPI – UK, 2001-10
                                                                                      • Competitive Context

                                                                                        • Key points
                                                                                          • Crisis led to a 12% drop in household wealth in 2008…
                                                                                            • Figure 8: Net worth of the household sector, 2005-09
                                                                                          • …although the value of household assets rebounded in 2009
                                                                                            • OEICs and unit trusts account for more than a quarter of all funds held in ISAs
                                                                                              • Figure 9: Value of funds held in ISAs, 2006-09
                                                                                            • Investment bonds hit by changes in tax rules
                                                                                              • Figure 10: Value and volume of investment bond sales, 2005-09
                                                                                            • Unit-linked bonds are the most popular type
                                                                                              • Figure 11: Proportional distribution of investment bond sales, by type, based on total new premiums, 2005-09
                                                                                          • Market SWOT Analysis

                                                                                              • Figure 12: UK collective investment market – SWOT analysis, 2010
                                                                                          • Who’s Innovating?

                                                                                            • Key points
                                                                                              • More retail investors appreciate the benefits of ETFs
                                                                                                • Offshore funds now included within IMA sector classifications
                                                                                                  • New product launches in the open-ended fund sector
                                                                                                    • An emphasis on transparency
                                                                                                      • Recent activity in the close-ended sector
                                                                                                      • Trade Perspective

                                                                                                          • About the AIC and IMA
                                                                                                            • New regulation represents both a challenge and an opportunity
                                                                                                              • Resolving regulatory issues
                                                                                                                • Drip-feed investment to smooth out the rough
                                                                                                                  • Offshore funds provide a timely alternative to UK income
                                                                                                                    • Low interest rates and an increased ISA allowance will hold up demand for income-bearing investments
                                                                                                                      • A more stable environment is needed to sustain the attraction of the UK as a home for investment funds and international asset management activity
                                                                                                                      • Market Size and Forecast

                                                                                                                        • Key points
                                                                                                                          • Total assets held by close-ended investment companies are worth over £87 billion
                                                                                                                            • Figure 13: Volume and value of close-ended investment companies, May 2001 and May 2010
                                                                                                                          • Investment company activity picked up in the second half of 2009
                                                                                                                            • Figure 14: Trends in market capitalisation of investment trust companies, 2005-09
                                                                                                                          • 2010 outlook: conditions still challenging, but there’s greater optimism
                                                                                                                            • Strong performance across all asset classes in 2009
                                                                                                                              • Figure 15: Unit trust/OEIC funds under management, by asset class, 2005-09 (year-end)
                                                                                                                            • Retail sales recover well in 2009…
                                                                                                                              • Figure 16: Retail sales of unit trusts and OEICs – UK-domiciled, 2005-09
                                                                                                                            • …but can this be sustained?
                                                                                                                              • Figure 17: Forecast of gross retail sales of unit trusts and OEICs – UK-domiciled, at current and constant prices, 2005-15
                                                                                                                            • Factors incorporated
                                                                                                                            • Market Share

                                                                                                                              • Key points
                                                                                                                                • JPMorgan is the largest investment trust provider in the UK…
                                                                                                                                  • Figure 18: Top 20 investment management groups, ranked by assets under management, March 2010
                                                                                                                                • …while Invesco Perpetual is the top open-ended fund manager…
                                                                                                                                  • Figure 19: Top 20 fund managers, by retail and private client funds under management (minimum lump sum is less than or equal to £50,000), March 2008-March 2010
                                                                                                                                • …and Fidelity leads in the ISA fund market
                                                                                                                                  • Figure 20: Top ten ISA fund managers, by ISA and PEP funds under managements, March 2009 and March 2010
                                                                                                                              • Companies and Products

                                                                                                                                  • Top three investment trust managers
                                                                                                                                    • JPMorgan Asset Management
                                                                                                                                      • 3i Group
                                                                                                                                        • F&C Investments
                                                                                                                                          • Top three retail open-ended fund managers
                                                                                                                                            • Invesco Perpetual
                                                                                                                                              • M&G
                                                                                                                                                • FIL Investment Management
                                                                                                                                                • Brand Communication and Promotion

                                                                                                                                                  • Key points
                                                                                                                                                    • Investment adspend increases slightly
                                                                                                                                                      • Figure 21: Total advertising expenditure on investment products and services, by product type, 2006-10
                                                                                                                                                    • Fidelity and Hargreaves Lansdown spent the most on advertising in the 12 months to April 2010
                                                                                                                                                      • Figure 22: Top ten collective investment advertisers, 2009 and 2010
                                                                                                                                                    • Most adspend is concentrated on the press and direct mail
                                                                                                                                                      • Figure 23: Collective investment advertisement expenditure, by media type, 2009 and 2010
                                                                                                                                                  • Channels to Market

                                                                                                                                                    • Key points
                                                                                                                                                      • Intermediaries dominate the sale of retail investment funds
                                                                                                                                                        • Figure 24: Gross retail sales of unit trust and OEICs, by distribution channel, 2005-09
                                                                                                                                                      • Fund platforms generated just over two fifths of ISA fund sales in 2009
                                                                                                                                                        • Figure 25: Gross retail sales of ISA funds, by distribution channel, 2005-09
                                                                                                                                                      • Platform progress
                                                                                                                                                        • Market differentiation
                                                                                                                                                          • New platforms emerging
                                                                                                                                                            • Investment companies should benefit from RDR reforms
                                                                                                                                                            • The Consumer – Ownership of Savings and Investments

                                                                                                                                                              • Key points
                                                                                                                                                                • Survey background
                                                                                                                                                                  • Collective investments are held by a very fairly small proportion (6%) of the UK’s adult population…
                                                                                                                                                                      • Figure 26: Ownership of common savings and investment products, 2009 and 2010
                                                                                                                                                                    • …but penetration increases sharply among the newly retired population
                                                                                                                                                                      • Figure 27: Ownership of common savings and investment products, by age, April 2010
                                                                                                                                                                    • Insight and implication
                                                                                                                                                                      • AB males represent a key target group
                                                                                                                                                                        • Figure 28: Ownership of common savings and investment products, by gender and socio-economic group, April 2010
                                                                                                                                                                      • Insight and implication
                                                                                                                                                                        • Household income and investment holdings
                                                                                                                                                                          • Figure 29: Ownership of common savings and investment products, by gross annual household income, April 2010
                                                                                                                                                                        • Insight and implication
                                                                                                                                                                        • The Consumer – Investment Motivations

                                                                                                                                                                          • Key points
                                                                                                                                                                            • Most people are saving or investing for their own financial security
                                                                                                                                                                                • Figure 30: Main reasons for saving or investing, April 2010
                                                                                                                                                                              • Reasons for saving vary with age
                                                                                                                                                                                • Figure 31: Main reasons for saving or investing, by age, April 2010
                                                                                                                                                                              • Men are more inclined than women to save for their retirement
                                                                                                                                                                                • Figure 32: Main reasons for saving or investing, by gender and socio-economic group, April 2010
                                                                                                                                                                              • Retirement saving – a luxury only open to higher earners?
                                                                                                                                                                                • Figure 33: Main reasons for saving or investing, by gross annual household income, April 2010
                                                                                                                                                                              • Equity investors are much more likely to be saving for retirement or tax reasons
                                                                                                                                                                                • Figure 34: Main reasons for saving or investing, by types of savings and investment products held, April 2010
                                                                                                                                                                            • The Consumer – Investor Behaviour

                                                                                                                                                                              • Key points
                                                                                                                                                                                • Collective investors are more financially astute
                                                                                                                                                                                    • Figure 35: Agreement with statements relating to investment acumen, performance, advice and online experience, by type of savings or investment product held, April 2010
                                                                                                                                                                                  • One in six have traded online…
                                                                                                                                                                                    • …but one in four rarely or never take professional advice
                                                                                                                                                                                      • More are unhappy than happy with the performance of their investments
                                                                                                                                                                                        • Knowledge comes with experience
                                                                                                                                                                                          • Figure 36: Agreement with statements relating to investment acumen, performance, advice and online experience, by age, April 2010
                                                                                                                                                                                        • Men and women generally behave differently when it comes to investing
                                                                                                                                                                                          • Figure 37: Agreement with statements relating to investment acumen, performance, advice and online experience, by gender and socio-economic group, April 2010
                                                                                                                                                                                        • Wealthier savers are more likely to seek expert advice…
                                                                                                                                                                                          • Figure 38: Agreement with statements relating to investment acumen, performance, advice and online experience, by gross annual household income, April 2010
                                                                                                                                                                                        • …as are those who are investing for tax-related reasons
                                                                                                                                                                                          • Figure 39: Agreement with statements relating to investment acumen, performance, advice and online experience, by main motivation to save/invest, April 2010
                                                                                                                                                                                      • The Consumer – Targeting Opportunities

                                                                                                                                                                                        • Key points
                                                                                                                                                                                          • Half of all collective investors are prepared to accept some risk for a potentially higher return
                                                                                                                                                                                              • Figure 40: Attitudes towards saving and investing, by type of savings and investment product held, April 2010
                                                                                                                                                                                            • Appetite for risk diminishes post-retirement
                                                                                                                                                                                              • Figure 41: Attitudes towards saving and investing, by age, April 2010
                                                                                                                                                                                            • Men are much more inclined to accept some risk when it comes to investing money
                                                                                                                                                                                              • Figure 42: Attitudes towards saving and investing, by gender and socio-economic group, April 2010
                                                                                                                                                                                            • One in six people on the highest income scale prefer to invest in property than equities
                                                                                                                                                                                              • Figure 43: Attitudes towards saving and investing, by gross annual household income, April 2010
                                                                                                                                                                                            • Those saving for tax reasons are most pro equity investment
                                                                                                                                                                                              • Figure 44: Attitudes towards saving and investing, by most popular main reasons for saving or investing, April 2010
                                                                                                                                                                                          • Appendix – Ownership of Savings and Investments

                                                                                                                                                                                              • Figure 45: Demographic profile of collective investors, April 2010
                                                                                                                                                                                              • Figure 46: Ownership of savings and investment products, by demographics, April 2010

                                                                                                                                                                                          Companies Covered

                                                                                                                                                                                          • Alliance & Leicester
                                                                                                                                                                                          • Association of British Insurers
                                                                                                                                                                                          • Association of Investment Trust Companies
                                                                                                                                                                                          • Bank of England
                                                                                                                                                                                          • Barclays Bank plc
                                                                                                                                                                                          • BlackRock, Inc.
                                                                                                                                                                                          • British Sky Broadcasting Group plc (BSkyB)
                                                                                                                                                                                          • Carbon Trust
                                                                                                                                                                                          • Co-operative Group
                                                                                                                                                                                          • Fidelity Investment Services Limited
                                                                                                                                                                                          • Financial Services Authority (The)
                                                                                                                                                                                          • Friends Provident plc
                                                                                                                                                                                          • Fundsdirect
                                                                                                                                                                                          • Gartmore Investment Management plc
                                                                                                                                                                                          • Gfk NOP
                                                                                                                                                                                          • Government Actuary's Department (GAD)
                                                                                                                                                                                          • Hargreaves Lansdown Plc
                                                                                                                                                                                          • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                                                                          • Henderson Global Investors
                                                                                                                                                                                          • HSBC Private Bank (UK) Limited
                                                                                                                                                                                          • International Monetary Fund
                                                                                                                                                                                          • Invesco Perpetual
                                                                                                                                                                                          • Investment Management Association
                                                                                                                                                                                          • J. Sainsbury
                                                                                                                                                                                          • John Gilbert Financial Research
                                                                                                                                                                                          • JPMorgan Invest LLC (BrownCo)
                                                                                                                                                                                          • Legal & General Group PLC
                                                                                                                                                                                          • Marks & Spencer
                                                                                                                                                                                          • Nationwide Building Society
                                                                                                                                                                                          • Scottish Widows Investment Partnership Ltd
                                                                                                                                                                                          • Société Générale Group
                                                                                                                                                                                          • Somerfield
                                                                                                                                                                                          • Tesco Plc
                                                                                                                                                                                          • Threadneedle Investment Services Ltd
                                                                                                                                                                                          • Waitrose
                                                                                                                                                                                          • Wm Morrison Supermarkets

                                                                                                                                                                                          Collective Investments - UK - July 2010

                                                                                                                                                                                          £1,995.00 (Excl.Tax)