The UK managed portfolios sector is seeing an increase in the use of passive investments, driving a downward trend in costs, says Morningstar.
According to its latest UK Managed Portfolio Landscape for 2024 report, the proportion of portfolios labelled ‘active’ has declined from 61% in 2022 to 48%, with the number of ‘truly active’ portfolios appearing lower still. As of the end of 2023, the UK managed portfolio industry made up 14% of the total UK wealth management market.
Tom Mills, senior manager research analyst at Morningstar, said: “Nowadays, managed portfolio clients have a wide choice of offerings. Typical provider lineups include active, passive, blended and sustainable investment styles, catering to a range of client risk levels.
“Such breadth and replication make the UK managed portfolio space a crowded landscape, creating difficulty for providers to stand out from competitors. The growing proportion of passive and blended managed portfolios and the increased use of passive holdings in portfolios also reflects commercial pressure on costs.”
Morningstar said passive funds continue to dominate the list of most frequently held mutual funds, with broad equity and bond market index funds particularly popular.
According to the financial research and analysis group, managed portfolios are overwhelmingly multi-asset solutions, primarily using mutual funds as their building blocks. Its research showed that over half (55%) of managed portfolios held on its database were incepted between 2018 and 2022, however the rate of new launches has since moderated, suggesting that the sector may be maturing.
Over the same period, across the most equity-heavy GBP allocation 80%-plus equity category, managed portfolios using mainly passive holdings have enjoyed greater success than their active peers.
Over five years to the end of July 2024, more conservative categories have produced higher absolute returns than their Morningstar category indexes but more equity-heavy categories have lagged, reflecting a challenging period for active equity managers.
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