While the IA UK All Companies sector remains the most heavily researched peer group in the Investment Association universe, analysis of research data from FE Analytics shows that professional investors have been increasingly turning their attentions elsewhere this year.
As the largest sector in the Investment Association universe and home to some of the biggest names in the industry, IA UK All Companies attracts the lion’s share of research activity from the advisers, discretionary fund managers and other professionals using FE Analytics.
During 2016, the sector accounted for more than 12.5 per cent of all Investment Association research activity – putting it well ahead of the IA Mixed Investment 20%-60% Shares (7.97 per cent of research), IA Global (7.25 per cent) and IA Mixed Investment 40%-85% Shares (5.98 per cent) sectors.
The sectors with the highest share of FE Analytics research
Source: FE Analytics Market Intel Tool
But in this article, we want to look at the sectors that have seen an increase in their share of research activity over the first five months of 2016 when compared to the whole of 2016.
When considered like this, IA UK All Companies is still the most researched peer group but its share of the research has decreased and others have been attracting more attention from professional fund selectors – with IA Volatility Managed sitting on top.
It's easy to explain why the IA Volatility Managed sector has seen the biggest increase in research activity as the peer group was only created in early 2017.
The sector launched in April but already has a 4.2 per cent research share for 2017 to date. It is home to outcome-focused products and contains some products' popular with professional investors such as the Standard Life Investments MyFolio, L&G Multi-Index and Architas MA ranges.
Of course, starting from zero meant that IA Volatility Managed was always going to be the sector that saw the biggest uptick in research activity. But which other peer groups benefited from an increase?
IA North America witnessed the second largest research uptick in research, after its share increased 0.176 percentage points to 3.66 per cent. The percentage increase changes are small, given the sheer number of funds and sectors to consider – but the actual research events are in the hundreds of thousands.
The sector is one that many investors tend to overlook, given the fact that the US equity space is quite a difficult one for active managers to outperform in.
FE Analytics shows that the average IA North America fund has underperformed the S&P 500 over one-, three-, five- and 10-year periods. Over the past decade, the average fund has lagged the index by more than 30 percentage points.
Performance of sector vs index over 10yrs
Source: FE Analytics
However, some investors have argued that the high valuations being seen in the US market – the country has driven much of global equities' gains over recent years thanks to loose monetary policy and a relatively bright economic outlook – suggests that stock-picking will be more important in the near future.
While these are very short time frames, the average member of the IA North America sector has beaten the S&P 500 over one, three and six months, which may have caught the attention of some professional asset allocators.
Professional investors were also looking outside home shores when it comes to the next sector witnessing an increase in FE Analytics research share as IA Global Equity Income sits in third place.
The sector witnessed a 0.132 percentage point increase to 2.5 per cent of FE Analytics research activity in the Investment Association universe, moving it from 18th place overall to 16th.
IA Global Equity Income funds tend to offer exposure to large-cap dividend stalwarts with the most common holdings in the sector being Pfizer, Cisco Systems, Johnson & Johnson, Microsoft and JPMorgan Chase.
UK equity funds dipped in popularity with investors following the country’s decision to quit the European Union. However, the IA UK Equity Income sector is the next peer group with an increase in interest, adding 0.125 percentage points to its research share and accounting for 6.17 per cent of the total.
Given the nature of the sector, its members also tend to offer exposure to stocks less reliant on the home economy. Among the most popular holdings here are the likes of GlaxoSmithKline, Imperial Brands, BP, British American Tobacco and Royal Dutch Shell – all of which are international-facing businesses.
The below table shows all the Investment Association sectors and how their professional investor research has changed over the opening months of 2017.
Research share change from 2016 to 2017's first five months
Source: FE Analytics Market Intel Tool
Of those losing research share, IA Unclassified comes off worse after shedding 2.4 percentage points to drop to 1.76 per cent. But this isn’t too surprising given the launch of the IA Volatility Managed sector – many of the funds joining the new peer group moved out of IA Unclassified to do so.
The two money market sectors were also hit by a fall in research activity. They had been particularly popular during 2016 as professional investors moved towards cash at the time of the Brexit referendum but have been researched less in more recent months.
Aside from IA Unclassified, IA Short Term Money Market and IA Money Market, it was IA UK All Companies funds that saw the biggest fall in interest with a 1.324 percentage point decline to 11.81 per cent (keeping it the most researched peer group).
Figures from the Investment Association show that the sector witnessed net redemptions for the bulk of 2016 and early 2017, although has seen a rebound more recently. In fact, IA UK All Companies was the most popular sector in March with net retail sales of £650m – the first time it has been the best-selling sector since in December 2013.
In an article tomorrow, FE Trustnet will reveal the funds from the popular sectors that have been capturing more adviser interest than their peers.