Defaqto to penalise 'too big for sector' funds on performance concerns

Questions if performance can be achieved

Defaqto is to mark down certain overly-large funds as part of its fund ratings criteria, over fears of a potential performance downturn resulting from excessive asset growth.

Fund concentration in the UK has significantly increased in recent years, with multi-asset absolute return giant Standard Life Investments' Global Absolute Return Strategies (GARS) sitting at £26bn and M&G's Optimal Income fund surpassing £15bn, for example.  However, Defaqto has become concerned size may hinder a manager's ability to continue performing strongly in some cases, as a larger volume of assets can reduce their ability to move nimbly between trades. Blockbuster funds: Do inflows really hurt returns? Frank Potaczek (pictured), senior vice president of funds at Defaqto, s...