Winners and losers: Morningstar identifies 10 managers seeing largest redemptions

Traditional active asset managers will have to “perform and adapt, or lose”, according to Morningstar, as only market gains and client flows from other active peers are likely to drive flows this year.

Morningstar’s Industry Pulse report, compiled by analyst Shaun Ler, found the most popular active funds in the year to January 2024, were from low-cost quant funds, newer boutiques excelling in non-traditional assets, or large diversified managers.

Most firms seeing strong inflows are relying on the performance of a few funds, it said, or flows prompted by the prospect of low-interest rates into this year which is improving investors’ risk appetite and enhancing fund flows.

The top 10 firms with the most inflows were:

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•    Dimensional
•    Macquarie Group Investment Management
•    Metrics Credit Partners
•    Resolution Capital
•    Mercer Investments Australia
•    Channel Investment Management
•    Realm Investment Management
•    Talaria
•    GQG Partners
•    MA Financial Group

On the other hand, those fund managers seeing the largest redemptions were mature firms with weak performance or those which were navigating a restructure or resolution of legacy issues. In the case of passive giant Vanguard, the firm is subject to two separate ASIC allegations regarding greenwashing in a select number of its products. 

The top 10 firms with the most outflows were:

•    Vanguard Australia 
•    Orbis Investments
•    BT Financial
•    AMP
•    Magellan
•    State Street Australia 
•    Fidante
•    Schroders
•    Pendal 
•    Commonwealth/Colonial

Looking at performance, Morningstar said: “GQG is the best-performing manager of late, but experience with Magellan and Platinum suggests boutiques struggle to retain an edge longer-term. 

“Our covered firms are generally performing in line with their comparable peers over a one-year period. This is not enough to regain the share lost to ETFs and industry funds. No firm has materially beat its peers on a one-year basis for long stretches.”

However, it was not all bad news, as Morningstar highlighted the diversified financial business and advice licensee Insignia and global fund manager Perpetual were being undervalued and offered the greatest relative value. 

Shares in Insignia are down 17 per cent over one year to 18 March, but new CEO Scott Hartley will take over from Renato Mota at the end of this month.

Morningstar said: “We believe the market underestimates Insignia’s ability to turnaround earnings. Likely improved fund flows and non-core cost cuts should offset fee compression and cost inflation to support an earnings close to its three-year historical average. Insignia has a market share advantage over smaller rivals to pursue cost-outs and product rationalisation. Scaling the business permits fee reductions and feature improvements, supporting longer-term asset-gathering. Shrinking share losses in the platform market, and improving advisor advocacy, reinforces our expectation for earnings to stabilise.”

In the case of Perpetual, in its recent half-year results for the six months to 31 December, chief executive Rob Adams acknowledged it has been a challenging period for active managers after seeing $4.3 billion in outflows. 

“We believe the market is overlooking Perpetual’s likely earnings growth from better flows and cost cuts. While the investments business is in net outflow, better investment performance supports new mandate wins and lower redemptions. 

“We anticipate improved volumes for wealth management and corporate trust with stabilising interest rates and potential macroeconomic improvements. Both segments face less competitive intensity than investments. Elsewhere, there is room to centralise operations and remove duplication given the Pendal acquisition. Perpetual is also cycling off a period of elevated investment.”