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The number of mutual funds in the UK has fallen almost to the fifth in the past four years as the industry is under pressure from cheap index tracking funds, higher interest rates and acquisitions.
A mutual fund is a company whose stocks are traded on the London Stock Exchange. They pool investors’ money into one pot, buying and selling shares of assets ranging from stocks to infrastructure.
However, the number of trusts has fallen to 275 from 337 in 2021, according to the Association of Investment Companies, according to the indication that the sector continues to face challenges 150 years ago.
“Many investors wonder why they should pay a higher fee for active management if fund managers don’t regularly beat the market,” said Dan Courtworth, an analyst at investment site AJ Bell.
“It has led to an increase in people switching from aggressive funds to passive funds.
Many mutual fund stocks fall behind the value of their assets. In other words, they are trading at a discount on the net asset value.
Mutual fund trading at a wide range of discounts may reflect investors’ concerns about performance or sector outlook. However, some investors may view discounts as an opportunity to buy stocks.
According to AIC, the average discount is at 13.8%. This is an improvement from 15.2% last year, but exceeds 2.6% in 2021.
“We’ve seen many companies stay in their rut when it comes to trading at a large discount,” Coatsworth said.
This has led some mutual fund boards to merge with their rivals to boost their assets.
“The same applies to the trust of many subscales in the market,” Coatsworth said. “Those under £200 million won’t attract attention from large investors as they may not be easily left out, so we’ve seen waves of integration and trust being caught up in it.”
There have also been a series of acquisitions, which have contributed to a decline in market trust. “As the high interest rate environment has slowed valuations, property is a hot spot,” added Coatsworth.
Real Estate Investment Trust Assura recently received interest on the acquisition from a private corporation led by US investor KKR and another bid from Primary Health Properties.
AIC said last year there was a merger of 10 people compared to the previous year’s four. Seven trusts were acquired last year compared to the two from the previous year.
Also, higher interest rates weigh mutual funds that borrowed money to serve their debt.
AIC CEO Richard Stone said “the board has worked actively for shareholders,” and last year marked a merger and buyback record. “There have been a lot of acquisitions because buyers recognize the appeal of the investment company’s undervalued assets.”
He noted that the integration of wealth managers led to mutual funds in demand for large mutual funds.
“Investment companies have survived the tests of a period that has existed for over 150 years and have evolved to meet the ever-changing market conditions,” he added.
