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Collective Investments - UK - July 2012

“The single biggest reason why Britons say they do not own an equity-based investment is not a lack of interest but rather a fear of putting their money at risk. A potential way to get around this key barrier is to communicate the difference between taking a gamble and a well-thought out calculated risk.”

– George Zaborowski, Senior Financial Services Analyst

Some questions answered in this report include:

  • What is the key organic growth area for investment fund providers?
  • How can providers improve consumer interest in investing?
  • How can providers help people get over their fear of risk?
  • What do retail investors look for in a collective investment fund?

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Table of contents

  1. Introduction

      • Abbreviations
      • Executive Summary

          • The market
            • Gross retail sales of open-ended funds projected to continue rising
              • Figure 1: Gross retail sales of unit trusts and OEICs – UK-domiciled – fan chart, 2007-17
            • Exposed to the same headwinds the closed-ended sector stagnates in 2011
              • RDR projected to be a good thing for investment trusts
                • Large majority of funds sold with advice
                  • Figure 2: Gross retail sales of unit trusts and OEICs, by distribution channel, 2007-11
                • Competing retail investment products
                  • Figure 3: Retail investment product sales, by volume, year to 31 March 2011
                • Market factors
                  • Investor confidence wobbles along with the economy
                    • Key regulatory developments
                      • Companies, brands and innovation
                        • Market share concentrated at the top
                          • Who’s innovating?
                            • The consumer
                              • Investment holdings – 9% own a collective investment fund
                                • Figure 4: Financial product holdings, May 2012
                              • 30% plan save or investment more over the next year
                                • Figure 5: Planned level of saving/investment activity over the next year, May 2012
                              • Simplicity paramount when choosing an investment fund
                                • Figure 6: Important factors when choosing an investment fund, May 2012
                              • Only a minority willing to take on risk
                                • Preference for regular income over long-term gains
                                  • Just a minority have faith in fund manager ability
                                    • Unwillingness to risk money the key reason for not holding equity-based investments
                                      • Figure 7: Key reason for not owning an equity-based investment, May 2012
                                    • What we think
                                    • Issues in the Market

                                        • What is the key organic growth area for investment fund providers?
                                          • How can providers improve consumer interest in investing?
                                            • How can providers help people get over their fear of risk?
                                              • What do retail investors look for in a collective investment fund?
                                              • Future Opportunities

                                                • Emphasising people’s inherent ability to take calculated risk
                                                  • The benefits of youth
                                                    • Tablet PCs as a powerful retail investor education tool
                                                    • Internal Market Environment

                                                      • Key points
                                                        • Subdued outlook for retail investor activity
                                                          • Figure 8: Intended investment activity, Q3/Q4 2002-Q1/Q2 2012
                                                        • Protecting client funds
                                                          • Key regulatory developments
                                                            • RDR comes into effect on 1 January 2013
                                                              • The key changes will enhance the competitive environment
                                                                • Changes in investment trust rules a double edged sword
                                                                  • Ban on platform rebates affirmed by FSA
                                                                    • EU regulation
                                                                      • PRIPS
                                                                        • MiFID II
                                                                          • The unfavourable tax treatment of the key target market
                                                                            • Overview of recent and upcoming changes in taxation
                                                                            • Broader Market Environment

                                                                              • Key points
                                                                                • UK economic growth prospects blurred by ongoing uncertainty
                                                                                  • Retail investors will be tested by markets prone to violent swings
                                                                                    • Figure 9: FTSE 100 and FTSE All-Share – daily index movements, June 2007-June 2012
                                                                                  • Squeeze on household incomes starting to ease in 2012
                                                                                    • Figure 10: Monthly change in RPI and average weekly earnings, January 2008-May 2012
                                                                                  • With savings underperforming inflation, more could turn to collectives
                                                                                    • Figure 11: Average annual changes in the Bank of England base rate, CPI and RPI – UK, June 2009- June 2012
                                                                                • Competitor Products

                                                                                  • Key points
                                                                                    • Competing retail investment products
                                                                                      • Figure 12: Retail investment product sales, by volume, year to 31 March 2011
                                                                                      • Figure 13: Market value of funds held in stocks and shares ISAs, 2011 (provisional)
                                                                                    • Investment bonds versus collectives
                                                                                      • Investment bond sales lagging significantly behind unit trusts and OEICs
                                                                                        • Figure 14: New investment bond premiums versus gross retail unit trust/OEIC sales, 2007-11
                                                                                      • The continued rise of ETFs
                                                                                      • SWOT Analysis

                                                                                          • Figure 15: UK collective investment market – SWOT analysis, 2012
                                                                                      • Who’s Innovating?

                                                                                        • Key points
                                                                                          • Social media meets investments
                                                                                            • Nutmeg
                                                                                              • GoalMine
                                                                                                • Defensive portfolios move to the fore
                                                                                                  • Impact Investment
                                                                                                    • Producing dividends from capital gains
                                                                                                      • HSBC launches Renminbi Fixed Income fund
                                                                                                      • Market Size and Forecast

                                                                                                        • Key points
                                                                                                          • Open-ended funds
                                                                                                            • Net retail sales of unit trusts and OEICs down by nearly two fifths in 2011
                                                                                                              • Figure 16: Value of retail sales of unit trusts and OEICs – UK-domiciled, 2007-11
                                                                                                            • Market prospects as of July 2012
                                                                                                              • Five-year forecast
                                                                                                                • Figure 17: Gross retail sales of unit trusts and OEICs – UK-domiciled – fan chart, 2007-17
                                                                                                                • Figure 18: Forecast of gross retail sales of unit trusts and OEICs – UK-domiciled, at current and constant prices, 2007-17
                                                                                                              • Forecast methodology
                                                                                                                • Fan chart explanation
                                                                                                                  • Close-ended investment companies
                                                                                                                    • Retail investment trust sales stagnate in 2011
                                                                                                                      • Figure 19: Volume of regulated retail sales of investment trusts, unit trust/OEICs and stocks and shares ISAs, 2007-11
                                                                                                                    • RDR helping to improve the long-term prospects for investment trusts
                                                                                                                      • Over a quarter of closed-ended investment companies operated offshore
                                                                                                                        • Figure 20: Number of closed-ended investment companies and value of assets, as of May 2001 and as of May 2010 to May 2012
                                                                                                                    • Segment Performance

                                                                                                                      • Key points
                                                                                                                        • Open-ended sector – nets sales of equity and property funds plummet
                                                                                                                          • Figure 21: Net retail unit trust/OEIC fund sales (UK-domiciled), by asset class, 2007-11
                                                                                                                        • Over half all open-ended funds under management are equity-based
                                                                                                                          • Figure 22: Unit trust/OEIC funds under management (UK-domiciled only), by asset class, 2006-11 (year-end)
                                                                                                                      • Market Share

                                                                                                                        • Key points
                                                                                                                          • M & G Securities is the largest retail fund manager
                                                                                                                            • Figure 23: Top 20 fund managers, by retail and private client funds under management (minimum lump sum is £50,000 or less), May 2010-May 2012
                                                                                                                          • Scottish Widows takes the lead in the ISA fund market
                                                                                                                            • Figure 24: Top ten ISA fund managers, by ISA and PEP funds under management, 2010-12
                                                                                                                          • JPMorgan remains the largest investment trust provider in the UK
                                                                                                                            • Figure 25: Top 20 investment management groups, ranked by assets under management, May 2012
                                                                                                                        • Companies and Products

                                                                                                                            • Top three unit trust/OEIC fund managers
                                                                                                                              • M&G Securities
                                                                                                                                • Invesco Perpetual
                                                                                                                                  • Threadneedle Investment Services
                                                                                                                                    • Top three investment trust managers
                                                                                                                                      • JPMorgan Asset Management
                                                                                                                                        • F&C Investments
                                                                                                                                          • Aberdeen Asset Management
                                                                                                                                          • Brand Communication and Promotion

                                                                                                                                            • Key points
                                                                                                                                              • Total investment adspend below 2009 levels
                                                                                                                                                • Figure 26: Total advertising expenditure on investment products and intermediary services, by product category, 2009-12
                                                                                                                                              • Top ten advertisers account for two thirds of the industry’s adspend
                                                                                                                                                • Figure 27: Top ten advertisers of collective investments and stocks and shares ISAs, 2009-12
                                                                                                                                              • Internet advertising is playing a more prominent role
                                                                                                                                                • Figure 28: Adspend on collective investments and stocks and shares ISAs, by media type, 2009-12
                                                                                                                                            • Channels to Market

                                                                                                                                              • Key points
                                                                                                                                                • £91.1 billion in unit trust/OEIC sales sold via intermediaries in 2011
                                                                                                                                                  • Figure 29: Gross retail sales of unit trusts and OEICs, by distribution channel, 2007-11
                                                                                                                                                • A fifth of intermediated sales are executed via fund platforms
                                                                                                                                                  • Figure 30: Share of gross retail unit trust and OEIC sales, by distribution channel, 2011
                                                                                                                                              • Investment Ownership

                                                                                                                                                • Key points
                                                                                                                                                  • Less than one in ten own a collective investment fund
                                                                                                                                                    • Figure 31: Financial product holdings, May 2012
                                                                                                                                                  • Relatively low savings levels prevent many from considering investing
                                                                                                                                                    • Figure 32: Financial product holdings, by level of investible assets, May 2012
                                                                                                                                                  • Getting around the perceived exclusivity factor
                                                                                                                                                    • Retail investing still primarily a purist of the older, affluent male
                                                                                                                                                    • Investment Plans over the Next Year

                                                                                                                                                      • Key points
                                                                                                                                                        • Nearly a third plan to save/invest more in the coming year
                                                                                                                                                          • Figure 33: Planned level of saving/investment activity over the next year, May 2012
                                                                                                                                                        • Those with lower levels of investible assets expect to save more
                                                                                                                                                          • Figure 34: Planned level of saving/investment activity over the next year, by investible assets, May 2012
                                                                                                                                                        • Most equity investors holding still
                                                                                                                                                          • Figure 35: Planned level of saving/investment activity over the next year, by product ownership, May 2012
                                                                                                                                                        • Putting the emphasis on versatility
                                                                                                                                                          • Young and ambitious
                                                                                                                                                            • Figure 36: Planned level of saving/investment activity over the next year, by select demographics, May 2012
                                                                                                                                                          • The remarkable benefit of starting young
                                                                                                                                                          • What Investors Look for in an Investment Fund

                                                                                                                                                            • Key points
                                                                                                                                                              • Investors are looking for easy to understand, low-cost funds
                                                                                                                                                                • Figure 37: Important factors when choosing an investment fund, May 2012
                                                                                                                                                            • Attitudes towards Risk and Investment Goals

                                                                                                                                                              • Key points
                                                                                                                                                                • Investment funds are perceived as too risky and unaffordable
                                                                                                                                                                  • Figure 38: Attitudes towards investment risk, May 2012
                                                                                                                                                                • Younger age groups risk tolerant but unsure if it is worthwhile to invest
                                                                                                                                                                  • Chipping away at exclusivity
                                                                                                                                                                    • Generating income takes precedent over potential for long-term gains
                                                                                                                                                                      • Figure 39: Attitudes towards income vs. long-term gains, May 2012
                                                                                                                                                                    • Younger, affluent men most prepared to lock funds away
                                                                                                                                                                    • Attitudes towards Investment Fund Management

                                                                                                                                                                      • Key points
                                                                                                                                                                        • Two fifths would prefer to manage investments on their own…
                                                                                                                                                                          • Figure 40: Attitudes towards investment managment, May 2012
                                                                                                                                                                        • Technology could make this increasingly more realistic
                                                                                                                                                                          • Affluent most likely to be confident in their ability to choose funds…
                                                                                                                                                                            • … as are existing owners of collective investment funds
                                                                                                                                                                              • Figure 41: Attitudes towards investment management, by financial product ownership, May 2012
                                                                                                                                                                            • Nearly a third doubt the ability of fund managers…
                                                                                                                                                                              • Figure 42: Attitudes towards investment fund managers, May 2012
                                                                                                                                                                            • … but attitudes are more favourable among those who own funds
                                                                                                                                                                              • Figure 43: Attitudes towards investment fund managers, by financial product ownership, May 2012
                                                                                                                                                                            • Young affluent men more likely to warm up to fund managers
                                                                                                                                                                              • Those with sustainable savings also more upbeat
                                                                                                                                                                                • Figure 44: Attitudes towards investment fund managers, by value of investible assets, May 2012
                                                                                                                                                                            • Reasons for Not Owning Investment Funds

                                                                                                                                                                              • Key points
                                                                                                                                                                                • Reluctance to put cash at risk the key barrier
                                                                                                                                                                                  • Figure 45: Key reason for not owning an equity-based investment, May 2012
                                                                                                                                                                                • Emphasising the peace of mind of taking a calculated risk
                                                                                                                                                                                  • Charges and fees more likely to be an issue for wealthier Britons
                                                                                                                                                                                    • Figure 46: Barriers to investing, by value of investible assets, May 2012
                                                                                                                                                                                  • Younger consumers don’t know where to begin…
                                                                                                                                                                                    • Figure 47: Barriers to investing, by gender and age, May 2012
                                                                                                                                                                                  • … nor do a fifth of higher-earners
                                                                                                                                                                                    • Figure 48: Barriers to investing, by socio-economic group and gross annual household income, may 2012
                                                                                                                                                                                  • Technology is helping to make learning about investing easier than ever
                                                                                                                                                                                  • Targeting Opportunities

                                                                                                                                                                                    • Key points
                                                                                                                                                                                      • Key target groups
                                                                                                                                                                                        • Figure 49: Attitudes towards investment funds, by target groups, May 2012
                                                                                                                                                                                      • Latent Demand
                                                                                                                                                                                        • Safe Bet
                                                                                                                                                                                          • Self-Directed
                                                                                                                                                                                            • Need Guidance
                                                                                                                                                                                              • Nearly half with £50K+ or more to invest are in the Latent Demand group
                                                                                                                                                                                                • Figure 50: Target groups, by value of investible assets, May 2012
                                                                                                                                                                                              • Target group product ownership highlight potential opportunities
                                                                                                                                                                                                • Figure 51: Savings and investment product ownership, by target groups, May 2012
                                                                                                                                                                                              • More than a third in Latent Demand group plan to save more
                                                                                                                                                                                                • Figure 52: Investment plans over the next year, by target groups, May 2012
                                                                                                                                                                                              • Target group barriers to investing
                                                                                                                                                                                                • Figure 53: Barriers to investing, by target groups, May 2012
                                                                                                                                                                                            • Appendix – Market Forecast

                                                                                                                                                                                                • Figure 54: Best and worst forecast of gross retail sales of unit trusts and OEICs – UK-domiciled, 2012-17
                                                                                                                                                                                            • Appendix – Investment Ownership

                                                                                                                                                                                                • Figure 55: Most popular savings and investment product ownership, by demographics, May 2012
                                                                                                                                                                                                • Figure 56: Next most popular savings and investment product ownership, by demographics, May 2012
                                                                                                                                                                                                • Figure 57: Other savings and investment product ownership, by demographics, May 2012
                                                                                                                                                                                            • Appendix – Value of Investible Assets

                                                                                                                                                                                                • Figure 58: Most popular value of investible assets, by demographics, May 2012
                                                                                                                                                                                                • Figure 59: Next most popular value of investible assets, by demographics, May 2012
                                                                                                                                                                                                • Figure 60: Value of investible assets, by demographics, May 2012
                                                                                                                                                                                            • Appendix – Investment Plans Over the Next Year

                                                                                                                                                                                                • Figure 61: Investment plans over the next year, by demographics, May 2012
                                                                                                                                                                                            • Appendix – Attitudes towards Risk and Investment Goals

                                                                                                                                                                                                • Figure 62: Attitudes towards investment funds, by financial product ownership, May 2012
                                                                                                                                                                                                • Figure 63: Attitudes towards investment funds, by value of investible assets, May 2012
                                                                                                                                                                                                • Figure 64: Attitudes towards investment funds, by investment plans over the next year, May 2012
                                                                                                                                                                                                • Figure 65: Agreement with the statements ‘I have faith in the ability of investment fund managers’ and ‘I don’t have enough money to make investing worthwhile ‘, by demographics, May 2012
                                                                                                                                                                                                • Figure 66: Agreement with the statements ‘I’m prepared to lock away my funds for five years or more’ and ‘I am prepared to take on some level of risk for the potential of higher returns’, by demographics, May 2012
                                                                                                                                                                                                • Figure 67: Agreement with the statements ‘I need my savings and investments to provide me with a steady income’ and ‘I can’t afford to put any of my money at risk, by demographics, May 2012
                                                                                                                                                                                                • Figure 68: Agreement with the statements ‘I would not have a problem seeing my investments fluctuate in value from day to day’, by demographics, May 2012
                                                                                                                                                                                            • Appendix – Attitudes towards Investment Fund Management

                                                                                                                                                                                                • Figure 69: Attitudes towards investment funds, by financial product ownership, May 2012
                                                                                                                                                                                                • Figure 70: Attitudes towards investment funds, by value of investible assets, May 2012
                                                                                                                                                                                                • Figure 71: Attitudes towards investment funds, by investment plans over the next year, May 2012
                                                                                                                                                                                                • Figure 72: Agreement with the statements ‘I have faith in the ability of investment fund managers’ and ‘I’d be confident in my ability to choose the right investment fund‘, by demographics, May 2012
                                                                                                                                                                                                • Figure 73: Agreement with the statements ‘It is best to invest in passively managed investment funds’ and ‘I am prepared to pay a higher management fee if my fund is being actively managed by a world renowned fund manager’, by demographics, May 2012
                                                                                                                                                                                                • Figure 75: Agreement with the statements ‘I would rather manage my own investments than have someone manage them on my behalf’ and ‘I can’t afford to put any of my money at risk’, by demographics, May 2012
                                                                                                                                                                                            • Appendix – Reasons for Not Owning Investment Funds

                                                                                                                                                                                                • Figure 76: Barriers to investing, by demographics, May 2012
                                                                                                                                                                                            • Appendix – Targeting Opportunities

                                                                                                                                                                                                • Figure 77: Attitudes towards investment funds, by target groups, May 2012
                                                                                                                                                                                                • Figure 78: Attitudes towards investment funds, by target groups, May 2012
                                                                                                                                                                                                • Figure 79: Attitudes towards investment funds, by target groups, May 2012
                                                                                                                                                                                                • Figure 80: Attitudes towards investment funds, by target groups, May 2012
                                                                                                                                                                                                • Figure 81: Target groups, by demographics, May 2012

                                                                                                                                                                                            Companies Covered

                                                                                                                                                                                            • Aberdeen Asset Management PLC
                                                                                                                                                                                            • Artemis Investment Management
                                                                                                                                                                                            • Aviva Plc
                                                                                                                                                                                            • Baillie Gifford & Co
                                                                                                                                                                                            • Credit Suisse Group
                                                                                                                                                                                            • Electra Partners Europe
                                                                                                                                                                                            • F&C Asset Management plc
                                                                                                                                                                                            • Grupo Santander Central Hispano S.A.
                                                                                                                                                                                            • Hargreaves Lansdown Plc
                                                                                                                                                                                            • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                                                                            • Henderson Global Investors
                                                                                                                                                                                            • HSBC Investments (UK) Limited
                                                                                                                                                                                            • Invesco Perpetual
                                                                                                                                                                                            • Investec
                                                                                                                                                                                            • JPMorgan Chase & Co
                                                                                                                                                                                            • JPMorgan Invest LLC (BrownCo)
                                                                                                                                                                                            • Jupiter Unit Trust Managers Ltd
                                                                                                                                                                                            • Legal & General Investment Management
                                                                                                                                                                                            • Lloyds Banking Group
                                                                                                                                                                                            • M&G Group
                                                                                                                                                                                            • Royal Bank of Scotland Group plc
                                                                                                                                                                                            • Schroder Investment Management
                                                                                                                                                                                            • Scottish Widows Bank plc
                                                                                                                                                                                            • St James' Place Plc
                                                                                                                                                                                            • Standard Chartered
                                                                                                                                                                                            • Threadneedle Investment Services Ltd
                                                                                                                                                                                            • Witan Investments

                                                                                                                                                                                            Collective Investments - UK - July 2012

                                                                                                                                                                                            US $2,672.70 (Excl.Tax)