As FE Trustnet reported last week, Cazenove is to slow inflows in to FE Alpha manager Julie Dean’s Cazenove UK Opportunities fund, locking investors out of one of the best-performing UK funds of recent years. It is the latest in a series of top-rated portfolios from major fund houses such as Fidelity, Troy, Aberdeen and First State to deter new investors this year.
Robertson says it is becoming increasingly difficult to get access to the best funds, and that there is a lack of decent alternatives to the soft-closed portfolios.
He says that the availability of free information and cheap platform deals is paradoxically reducing choice for the investor.
"The big problem we are finding across the board is the soft-closures that are going on are reducing choice," he said.
"At the moment, most of the good funds are beginning to soft-close because there’s just so much money going into them."
"Over the last few years with platforms, and advisers having more transparency with what’s going on with funds and track records, there has been a flight to quality."
"So much money is going into the better funds that actually they are all becoming too big."
Robertson also thinks that the consolidations in the industry, such as the purchase of Cazenove by Schroders, are unhelpful for investors because they create uncertainty and raise the likelihood of funds being closed.
"There’s too much M&A. There will be doubts about what funds will survive," he said.
Julie Dean’s £1.6bn Cazenove UK Opportunities fund is seeking to slow inflows to protect existing investors, after attracting more than £700m in just one year, according to data from FE Analytics.
The decision came after the manager made 116.15 per cent in just five years, while the FTSE All Share rose just 36.4 per cent.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
Aberdeen recently slapped an initial charge on its emerging markets funds to slow inflows, while chief executive Martin Gilbert has floated the possibility that the same could happen with its Asian funds.
First State, meanwhile, has moved to reduce inflows into its Global Emerging Markets Leaders fund by implementing a steep initial charge of 4 per cent. The fund has seen inflows of almost £1bn in just 12 months, according to our data.
Rob Morgan, investment analyst at Charles Stanley Direct, says that the problem is particularly acute with emerging markets funds, where the expertise needed to do well costs a lot of money and resources that many fund groups are not able or willing to employ.
However, the phenomenon is not restricted to that sector.
Fidelity UK Smaller Companies, which sits top of its sector over five years with returns of 188.49 per cent, has also been soft-closed, joining Harry Nimmo's Standard Life UK Smaller Companies fund on the list of small cap portfolios unavailable to retail investors.
Performance of fund vs sector over 5yrs
Source: FE Analytics
Concerns have also been raised about the inflows into FE Alpha Manager Giles Hargreave's Marlborough Special Situations fund, with some commentators saying that if it gets much bigger it will not be a smaller companies portfolio anymore.
FE Alpha Manager David Coombs, head of multi-manager at Rathbones, says that it is a problem he has been flagging up for a while.
"Maybe RDR has had an impact in that there has been more concentrated buying since it came in," he said. "Big funds are attracting more money than ever."
"It’s been going on for three to five years, but I do think it’s accelerating," he added. "I think people are finally waking up."
Coombs says that fund houses have been complicit in the process, as they have been too slow to reduce inflows, to the detriment of investors in the funds.
"A number of groups out there have allowed funds to get too big. If a fund has high levels of inflows it can detract from performance and you tend to see big funds start to underperform."
"The situation is getting worse than ever, with the industry dominated by My Folio, Spectrum and Jupiter Merlin and the like."
"Clearly, when you are seeing those sorts of inflows the funds can get too big too quickly."
"These funds get too big and have to buy the second- or third-rate stocks. Then their correlation with the index increases and investors start to get disappointed with active management."
The manager says that he keeps an eye on the size of funds in his portfolios, and looks for nimbler alternatives to anything becoming too bulky.
"We tend to sell funds early when they are getting too big. It’s a problem. We have been talking about it for some time."
"Funds have been getting too big and closing too late and it is a problem."
"If you look at Newton Asian Income, for example, it’s a very big fund in an asset class that isn’t very liquid."
As far as the development of the industry goes, Robertson foresees a time when funds will open up "son of" structures, launching funds with identical mandates to successful portfolios, but with a separate pool of assets.
Coombs thinks that retail investor will end up losing out, as many fund houses will end up removing their best funds from platforms to protect performance.
"Eventually you will get some funds that will leave the major platforms because they cannot take the flows, and you will get a two-tier system," he said.
In an article later today, FE Trustnet will be looking at some top-rated funds to have missed out on attention despite strong performance.
