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The UK’s biggest wealth manager sells mutual fund holdings, exposing the £274 billion industry to more opportunistic and activist investors, experts warn.
According to a report by Consultant Horse Partners and Richard Davis Investors Relations, wealth managers sold about 1.2 million mutual fund shares last year, bringing a 7% decline in shares held the previous year.
But retail investors are buying. The number of mutual fund stocks held by individuals rose 4% last year, but its value increased 8%, according to the report.
A mutual fund is a public company whose stocks are listed on an exchange. They have an independent board to oversee governance, and the assets are run by fund managers. The mutual funds make up about one-third of the FTSE 250 with the number of companies.
However, mergers and acquisitions in the wealth management industry have led to fewer large groups of managers, which are so large that it becomes difficult to put money into small mutual funds.
“This trend is expected to continue as integration continues and investment minimums are promoted, leaving the mutual fund committee with two options remaining,” said Georgina Dybvig, partner at Warhorse.
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According to the Investment Company Association, the average mutual fund stock price on a total revenue basis has increased by 8% over the past year.
Experts in other industry have warned that the retreat of wealth managers, traditionally considered mutual fund supporters, leaves the sector vulnerable to activists and opportunistic investors.
US hedge fund Saba has campaigned against seven UK exchange-traded funds in an attempt to overhaul the board and ultimately manage its assets. However, Saba’s proposal was rejected by shareholders in all seven trusts.
“We are committed to providing support for our clients with a focus on fund ratings,” said Darius McDermott, managing director of FundCalibre, a fund ratings service. Why do they all look at this area? It’s really, really cheap, partly because it’s sold by wealth managers. ”
Ewan Lovett-Turner, director of research for investment firms at investment bank Deutsche Numis, said investors looking for “value” opportunities, including activists, were “part of the key buyers at a time when some of the traditional buyers returned.”
He explained that liquidity needs (selling investments quickly) “limits the ability of many investors” when supporting investment trusts.
Fees are also being scrutinized, putting mutual funds at a disadvantage with cheaper stock or index tracking funds.
However, individual investors are buying mutual fund stocks because they are selling by wealth managers.
Dybvig said 2024 was “showing the continued importance of retail investors to the mutual fund sector.”
The industry was afraid that retail investors, who tend to be less involved than institutions, would not vote in the SABA campaign. However, some of the UK’s largest investment sites, including Hargreaves Lansdown, have reported record-breaking voting votes.
“Communication with retail investors is more important than ever, and in 2025, a critical platform is already increasing the game when it comes to taking over voting requests from businesses,” Dybvig said.
