Life company funds are producing top-quartile performance as they concentrate on obtaining manager talent and creating alpha-focused products. Within the retail fund sector, life companies have notoriously been considered to have mediocre offerings. With only a handful of notable exceptions, such as Standard Life Investments, few have been able to establish a strong asset management arm separate from their life parent.
However, in recent years, there has been a greater emphasis on recruiting talent and launching more actively managed portfolios to noticeable effect.
Life companies have tended to have strong reputations within fixed-interest sectors while being stereotyped as dull within the broader equity sectors. Today, that does not always seem to be correct. Life groups are no longer the strongest bond manufacturers but neither are they the worst equity providers, leading to a more level playing field between companies across the industry.
Simon Ellis, managing director, unit trusts, at Legal & General, says life groups are taking the investment side of their businesses more seriously and spending money on talent.
The time for pedestrian performance is gone if groups want to thrive, so the focus needs to be on investments not just the wrappers. “The future of fund management is investment, not the creation of more products.”
In looking at three-year statistics from Morningstar to January 4, a number of equity funds from various life companies are top quartile, beating funds from popular investment boutiques and pure fund management groups.
Within the UK All Companies sector, Aviva Investors has 10 portfolios, two of which are first quartile, and of Aegon’s three UK equity funds, its UK Equity fund is top quartile. Scottish Widow’s UK select growth and Swip’s UK advantage and UK opportunities funds all feature in the first quartile, while Royal London has two top performers UK growth and mid-cap growth. Standard Life Investments is another firm with two at the top of the leader table over three years UK Equity high alpha and UK equity unconstrained.
L&G has 19 different UK equity funds in this sector, most of which are Barclays and Alliance & Leicester portfolios. One of the Barclays multi-manager funds is ranked first quartile while two of the five of L&G’s own actively managed portfolios, UK growth and UK alpha, are ranked top quartile.
UK All Companies is not the only equity sector where life groups have a presence among the best performers over three years.
The Europe excluding UK sector features funds from Aviva, LV=, Royal London, Scottish Widows and Standard Life in the top rankings, while the North America sector has a first-quartile fund from CanLife, Ignis and Scottish Widows. Meanwhile, the Japan sector holds CanLife and Scottish Mutual.
But while equity funds from the traditional benchmark-hugging life companies may be improved when looked at over a three-year cumulative period, how do they stack up more recently? And how are they with regards to consistency?
In the shorter term, of the top 25 best-performing funds in the 312-strong UK All Companies sector, eight are from life companies three from Standard Life Investments, one each from L&G and Royal London (the 26th-best performer is also a Royal London fund) and three from Scottish Widows, two of which are Swip-branded.
Thames River Capital co-head of multi-manager Robert Burdett says that in the consistency research he and Gary Potter undertake there are a surprising number of products from life groups. In looking at the Europe Ex-UK sector, where there are a number of top-quality fund managers, just 12 offerings have beaten the sector average three years in a row. Of that 12, five are from life groups, including Royal London, Standard Life and Aviva.
Hargreaves Lansdown investment manager Ben Yearsley says that while Standard Life Investments was one of the first life companies to really make headway in establishing a solidly performing fund house separate to its life parent, others are catching on. “Aegon and L&G have really raised their game lately,” he says. But while he acknowledges the improvement, he still believes many life groups have further to go before they can be truly competitive in many of the equity sectors.
Burdett adds that his funds certainly feature more offerings from life firms than is typical, most notably from L&G, where he too has noticed a marked improvement in performance within the equity offerings.
Bond funds have typically been a staple buy from life groups and while by and large they have maintained a strong presence in this asset class, the pure fund houses have also stepped up their game in order to compete. Burdett agrees life groups face greater competition in this space but he does not believe their offerings have waned in strength. He says the team at Aegon remains strong and singles out L&G’s dynamic bond managed by Richard Hodges as a favourite. M&G dominated corporate bond sales last year and it must not be forgotten that the group is owned by life company Pru.
One difficulty in achieving equity performance for life groups has been the perception that they struggle to retain leading managers. But Ellis does not think that being subjected to fund manager departures is an ailment peculiar to life houses.
He says: “If one in three managers changes jobs every year, they’re not all leaving life companies. The hunt for talent is universal.” In fact, he adds, it could be argued the brain drain is now working as much in the opposite way. L&G’s chief executive Peter Chambers was at Framlington while the group’s head of active equities Mark Burgess is ex-Deutsche Asset Management. Meanwhile, head of fixed interest Roger Bartley was at Gartmore. Life groups are spending money on developing strong incentives as well as retention packages to better keep the talent behind their funds, adds Ellis.
Burdett agrees that in some life groups the cause and effect of this change in focus can be seen, although he adds it remains on a case-by-base basis for now.