Managed portfolio services labelled by their providers as “active” have declined from 61% of Morningstar’s database in 2022 to 48% at the end of July 2024.
Currently, under 15% of managed portfolios have no index funds included, as the popularity of passive and blended portfolios rise. While in 2022 half of active holdings kept passive allocations below 25%, by July 2024 just 37% of Morningstar’s database kept this proportion.
According to Morningstar, this is linked to the cost of the portfolios. The median management fee of a blended or active portfolio is 24 basis points, while a passive portfolio has a median management fee of 12 basis points. Passive portfolios have managed to decrease this by 2 basis points since 2022.
Tom Mills, senior manager research analyst at Morningstar, said: “The growing number of passive and blended managed portfolios, and the increased use of index funds, reflects commercial pressure on costs. We measure overall costs as management fees, plus the cost of underlying portfolio holdings.
“The median combined costs of active, passive, and blended managed portfolios all now stand slightly lower than in 2022, when we carried out our first study. This has mainly come from slow but steady reductions in underlying holding costs.”
While the number of managed portfolio products experienced a high period of growth from 2018 to 2022, with 55% of current portfolios launched in this span, new offerings slowed in 2023. And while sustainable offerings also grew during this time, now accounting for 25% of available products, just one was launched in its databased during 2023. According to Morningstar, this is the lowest number since 2015.
“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,” Mills said.
“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.”
This story first appeared on our sister publication, Portfolio Adviser.
