M&G Optimal Income, Standard Life Investments GARS and Fundsmith Equity are among the biggest unit trusts and OEICs in the Investment Association universe. But what does this mean for those invested in them? Lauren Mason finds out.
Commenting on the findings, Adrian Lowcock, head of personal investing at Willis Owen, noted a number of funds on the list are very well-managed. He therefore has little concern their AUMs have become too big - at least for the time being.
"I do like Fundsmith Equity," he told Investment Week. "It has a simple and clearly-stated investment philosophy and a very experienced manager. While size could become an issue, I do not think we are close to that at this point.
"Meanwhile, Newton Real Return has a good defensive philosophy with a focus on protecting capital for investors. It is the sort of fund that does well in down markets and over an investment cycle.
"I also like the Stewart Investors Asia Pacific Leaders fund. They are experienced investors and, again, the size is not yet an issue for them. Its three-year underperformance is linked to higher-octane styles driving the Asian market, as this fund is more defensive in nature."
Fund capacity
Indeed, Evan-Cook pointed out that Stewart Investors as a fund house has done a good job of managing fund capacity.
"Firstly, it took the sensible step of closing its original Asia Pacific strategy to new investors while it was fairly modest in size. It then opened the Leaders strategy, and was clear in telling investors it would not be able to invest in some of the smaller companies in the original fund," he said.
"As part of the larger First State group, it also split the team and its assets in half to relieve some of the other challenges that come with scale. The Leaders fund remains one I would comfortably put my own money in despite its size, which is the acid test for any investment choice we make."
Investors should still tread carefully though, according to Lowcock. While he said size is less of an issue for fund-of-funds and multi-asset funds (which are becoming increasingly popular as advisers opt for one-stop solutions), he cited Fundsmith Equity, Stewart Investors Asia Pacific Leaders and M&G Optimal Income as some of the funds on the list that could struggle with liquidity issues if they keep growing.
"M&G as a fund house has a lot of money in bonds and, if there is a rush for the exit, these funds could suffer from liquidity issues," the head of personal investing warned.
"With Stewart Investors Asia Pacific Leaders, the Asian market is not as big as the UK's, so there are fewer investment opportunities and the companies are smaller in size. Therefore, as the fund gets larger, the team may find it harder to invest in its best ideas."
Lowcock added that Fundsmith holds around 30 stocks and manager Terry Smith is a long-term investor, so size in the short term is not an issue.
"But, if he chooses to sell a stock, then it is going to be a significant disposal," he warned.
