Morningstar Launches UK Managed Portfolio Database

Database provides transparency and comparability to this growing sector

Sunniva Kolostyak 28 July, 2022 | 10:24AM
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Managed portfolio services (MPS) are becoming increasingly popular with investors. In 2021, on-platform managed portfolio services saw assets grow by nearly a quarter, becoming one of the fastest-growing investment solutions in the UK.

This is visible from Morningstar’s newly launched UK Managed Portfolio Database, the first independently collected market database of UK managed portfolios.

According to our data, several hundred new managed portfolios were reported to Morningstar between 2018 and 2020, reflecting rapid growth in the sector. While 2021 saw a slowdown in launches, 2022 has already surpassed 2018 in annualised numbers.

Allocation portfolios, which provide clients with asset allocation as well as fund selection, are the most common category: around 94% of managed portfolios are allocation products.

The Morningstar categories, GBP allocation 40-60% equity and 60-80% equity, account for over a quarter of portfolios. Plus, the more aggressive 80%+ equity category and more moderate 20-40% equity category make up about 20% each.

Only a handful of portfolios belong in the flexible allocation and global fixed-income categories, and a relatively small number are classified as global equity.

Passive or Active Managed Portfolios?

Digging deeper, index funds are some of the most common holdings by managed portfolios and they account for eight of the top 10 most held funds.

Tom Mills, senior analyst, multi-asset & alternatives, manager research at Morningstar, says: “This is perhaps unsurprising given their inclusion in both fully passive portfolios and portfolios holding a mix of active and passive funds, which may use index funds for efficient exposure to an asset class, country, or sector, and to reduce overall costs.”

The most held fund is the Bronze-rated Vanguard Global Bond Index, while HSBC Index Tracker Investment Funds American Index and Vanguard US Equity Index, both Gold-rated, are popular choices for allocations to US equity.

Active Managers for Sustainability

Among the most held active funds, sustainable funds are standouts. According to Morningstar’s analysts, many providers are turning to a handful of well-recognised managers when looking for active funds that meet sustainability requirements.

The most held active fund is Rathbone Ethical Bond. Its popularity could be due to the narrow number of ethical bond funds available market. Meanwhile, there are 220 portfolios that indicate a focus on sustainability, and Silver-rated Royal London Sustainable Leaders Trust is the other active fund among the top 10.

Morningstar Sustainability Ratings indicate that those managed portfolios described as having a sustainable focus appear true to their label, overall, with their Sustainability Ratings tending to be significantly higher than other managed portfolios.

How Blended are Portfolios?

Referring to their underlying holdings, 61% of managed portfolios are described as active by their providers, with 23% passive and 15% a blend. However, Morningstar analysis shows this could understate the number of portfolios that actually blend active and passive funds, depending on the materiality thresholds used.

Across all the portfolios in the dataset, just over 1,200 distinct underlying holdings are used. “This might seem narrow relative to the potential universe of funds across the market but likely reflects the much lower number of providers* and the need for platform availability,” Mills says.

“Quality is of course also a relevant consideration, further narrowing the opportunity set, and we find the most held funds are well-rated by Morningstar.”

What Are Managed Portfolio Services?

MPS are investment services which capture portfolio holdings and asset allocation, calculates performance and risk scores and categorises investments, providing the industry with comparable and independently calculated data. Wealth managers and advisers can provide professional portfolio management to investors, including the selection of underlying funds and trade execution. Currently, over 50 providers have portfolios included in Morningstar's dataset.

Morningstar's newly launched UK Managed Portfolio Database is the first independently collected market database of UK managed portfolios. It makes available a wide range of data points for nearly 900 managed portfolios, at the time of writing. We expect this number to grow. Further data points will also be forthcoming, including summaries of underlying fund fees and total cost of investment data. Risk and return data are also available to database subscribers.

* The number of providers covered in report may differ from those currently available in the live database

 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Sunniva Kolostyak  is data journalist for Morningstar.co.uk