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Big is beautiful, says Schroders

Schroders managing director of UK retail Robin Stoakley believes the climate has changed to favour bigger investment firms as investors look for innovative and niche products.

He says boutiques have done well to establish themselves and attract a number of mainstream managers to set up strong offerings but they will struggle to offer the type of products that advisers would like in difficult market conditions.

Examples he gives from his own firm include the Schroder agriculture fund and income maximiser. He says JP Morgan cautious total return and BlackRock UK absolute alpha have also received wide acclaim for being innovative and producing strong returns.

Stoakley says: “Bigger firms have got the ability for these innovative strategies while they also have the resource and the international exposure to tap into. The definition of a boutique is a small specialised shop selling fashionable goods. They are quick to market them but it tends to be that they focus on a narrow range which they are very good at.

“Don’t get me wrong, there is a place for boutiques but they tend to perform in a strong bull market. The dynamic of markets has also changed, with sub-advised deals appearing with open architecture. These deals tend to be with the bigger firms, making them our direct competitors over boutiques.”

Schroders has recently brought out a diversified target return fund based on its institutional growth fund which has grown to £1.4bn since launch in May 2006 and taps into 15 to 20 asset classes.

Another recent example of an innovative launch is JP Morgan’s global consumer trends fund which taps into behavioural patterns in Western and Eastern markets. It invests in between 40 and 100 stocks focusing on three main opportunities of demographic change, wellness and health and aspirations and luxury.

The fund is run by Peter Kirkman, supported by Burcu Ugurtus, and harnesses the talents of JPM’s 260 investment professionals around the globe.

JP Morgan Asset Management head of sales Jasper Berens says: “Investors want to place money with funds and houses that they know will be there in the long term and offer innovation. We can do that with the likes of consumer trends and the cautious total return fund.

“A lot of it is down to sheer manpower. How many boutiques do you see offering a natural resources product, given the amount of research needed to run such a vehicle?”

HSBC managing director of wholesale Andy Clark says: “There is a call for innovation. Multi-asset is growing, as is the demand for global investment. As groups look to maintain their market share in times like these, innovation will remain important.”

Chelsea Financial Services managing director Darius McDermott believes that boutiques can challenge the bigger players on innovation. He says: “Look at Midas as a good example. It runs a series of multi-manager vehicles that adopted the multi-asset approach and produced strong returns ong before a number of the bigger players followed suit. It is not always about the number of staff but the talent.”

Hargreaves Lansdown recently ran a survey which asked 500 clients who they were most likely to invest with. It saw boutiques including Neptune, First State and Artemis overtake bigger companies such as Schroders, Threadneedle and Gartmore, all of which were absent from the top 10.

Investment manager Ben Yearsley says: “There is no right or wrong answer as to who will have the upper hand between boutiques and bigger firms going forwards. Bigger houses do have the capacity to run niche and innovative products but they can be slowed down by bureaucracy in getting these products to market.

“I would have no problem investing in a natural resources product run out of a boutique firm provided that the manager has the talent to run that fund. For me, there is no difference between running that and a UK offering.”

PSigma Asset Management launched last year with the ambition to run funds in the mainstream asset classes. The group has brought out four mainstream funds, including its flagship income fund run by Bill Mott.

Managing director Ian Chimes says: “The plan was always to be boutique in the way our staff work but mainstream in terms of the funds we offer. We had to ensure that the brand was recognisable to the IFA market and that meant offering funds that would do this and would achieve critical mass. Bill Mott’s income fund now has £415m in assets under management.

“We could go into a niche area with our fifth fund if we chose to but we would be unlikely to hire a manager and launch a fund in an arena where there are a number of funds run by bigger firms.”

T Bailey fund manager Jason Britton says: “Boutiques can be classified by size or speciality and I believe it is not accurate to say only big firms can provide innovation from a product perspective. An example is Ambrian Asset Management which offers an agriculture fund that has an innovative link-up with the Royal Agriculture College while City Financial has a strategic gilt fund that uses a covered call overlay in defensive circumstances.

“Boutiques may not have a vast range of specialisms but are very strong at what they focus on, which is what the market wants and needs.”

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