Every week new data is released which points towards the grim economic future on the horizon. As inflation continues to rise and geopolitical uncertainty looks set to stay, market volatility seems inevitable for the time being.
As a result, wealth management firms are reporting drops in asset under management (AUM) and portfolio losses.
We’ve seen a number of star fund managers fall in recent weeks.
The Fundsmith Equity Fund, managed my Terry Smith, is down 11.1 percent for 2022. This compares to a fall of 6.2 percent posted by the MSCI World Index.
The £907 million Blue Whale Fund, which is backed by Peter Hargreaves and managed by Peter Yiu, was down by 22.3 percent at the end of April.
Meanwhile, Scottish Mortgage Investment Trust, which is managed by Edinburgh-based Baillie Gifford’s Tom Slater and Lawrence Burns, has experienced a 45.6 percent fall in its share price after it achieved an all-time high on 5 November 2021.
Of course, the hope is these losses will be recovered and the funds will continue to make gains. This is perfectly possible, but right now the numbers do not make for easy reading, especially for the individuals invested in them.
Before this period of volatility, it has been relatively difficult to distinguish between good and bad investment managers. You would have been hard pressed to lose money during this period.
The boom in retail investors since March 2020 demonstrates this in many ways.
Since then, thousands of individuals – particularly younger people – have taken advantage of the very favourable market conditions.
The worry, of course, is now many of these new investors may experience heavy losses. Large funds have the infrastructure in place to deal with difficult periods. Retail investors may not.
Various pieces of research have indicated that a lot of retail investors do not have well diversified portfolios and are disproportionately exposed to high risk assets.
A period of negative market movements and portfolio drops could deter these individuals from investing. A generation could be put off investing.
While this may not concern the wealth management industry at the moment, it could pose a problem in years to come.
Many retail investors fall into the HENRY category (high earning, not rich yet). In 10 years or so they could become lucrative clients. If they have been discouraged from investing by past burns they may be wary of
There is an opportunity for wealth managers that can guide these individuals through the current crisis. Firms who have a hybrid advice service, like Charles Stanley, or a platform business, like Tilney Smith & Williamson’s BestInvest, may find themselves in a position to support these investors and help them weather the storm.
Regardless of whether investors are retail or professionals, the luck has run out. Professionals have a real opportunity to prove their worth and earn their fees.
