Unitised discretionary fund managers
UDFMs are collective investment schemes run by discretionary managers and they are usually the best expression of the house investment style. The potential benefits of a UDFM approach include:
• To provide a proposition for lower value clients
• To provide a proposition that is suited to platform administration
• To simplify the tax management for clients
• To remove VAT from the annual management charge
• To allow wider numbers of clients to access a discretionary manager or team
UDFMs are distinct in the way they are run, managed and structured and our approach at Defaqto has been to separate out UDFMs from other ‘managed’ fund ratings and fund of funds/directly invested funds as we feel that they stand alone as a sector in their own right.
Defaqto has built a synthetic sector of UDFMs similar to what we already had for risk targeted multi-manager funds as both exist across a number of traditional IMA sectors.
In the case of UDFMs these sectors are mixed investment 0-35 per cent shares, mixed investment 20-60 per cent shares, mixed investment 40-85 per cent shares, flexible, sterling corporate bond, global bonds and unclassified.
Our UDFM universe currently comprises 27 firms and these typically follow the main DFM house view and are often managed on a top-down basis.
We have seen a lot of growth in this area of funds too. As with risk targeted, unitised discretionary funds usually exist as families run by the same team and process but with different risk profiles.
In the case of unitised discretionary, though, reporting to advisers and clients tends to be more detailed and granular, for example with bespoke information on what holdings the client owns and custom performance over just the period the client was invested.
Ever changing universe
Investment outsourcing has provided commercial opportunities for different types of investment manufacturers to provide offerings.
Risk targeted funds are driven by the need to know what the risk profile (based on asset class price volatility) is and the capacity for loss the client is willing to take or able to bear. Once advisers know that, they can ensure that the risk profile matches the client’s desired investment outcome. Leaving aside how long the investment is held for or the type of product/tax wrapper used, and assuming a capital return outcome, advisers have some useful investment vehicles available to make these things happen.
So this is the new investment world but, as we have seen over the past 10 years, change is ever present.So will we see it change again? Most likely. But for now, this is it, until we have to adapt our knowledge and processes … again.
