It’s a hard sell for smallcap funds as retail investors run scared
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Global stockmarkets had a serious wobble over Christmas, giving rise to a round of caution among investors.
That means more money on the sidelines, which in turn means listed investment groups have less funds under management (FUM) — the core driver of their business model.
Listed investment vehicle Investsmart is the latest one to feel the pain, informing investors last week that its growth engine — fee income from FUM — wasn’t revving as hard as the company had hoped.
All about FUM
Investsmart offers a number of financial services from which it generates income, and is a publisher of financial advice and news sites such as two investment newsletters established by business journalist Alan Kohler.
However, it said last year that: “growing FUM is our primary revenue growth driver in FY19 and beyond.”
And up until the September quarter, it was doing just that. Total FUM climbed to $114 million as at September 30, up 9 per cent for the quarter and 240 per cent from the June 2017 total of $33.2m.
Looking into its crystal ball last August, Investsmart told the market it expected fee income on FUM to grow by a healthy 300 per cent in the 2019 financial year.
But those expectations have now been tempered. The decline in equity markets saw total FUM fall by 3.5 per cent in the December quarter, to $110 million and they say they are unlikely to meet guidance.
“Deteriorating market conditions since September 2018, as measured by the All Ordinaries Accumulation Index, has resulted in reduced inflows and a delay in the launch of our new active exchange traded fund (ETF),” the company said in a statement last week.
As to exactly how far it’s going to miss by, Investsmart was less forthcoming.
Not the only one
With $114 million under management, Investsmart is at the small end of the funds management spectrum.
The smaller listed vehicles can often be more susceptible to a market downturn because their client base is largely comprised of retail investors.
That differs from larger players such as Magellan, who also attract large capital flows from institutional clients who may be better-placed to invest for the long-term and withstand market downturns.
Earlier this month, Raiz Invest (ASX:RZI), the funds management app aimed at millennial retail investors, provided a trading update which showed stagnant growth in new signups.
If they’re not losing investments, they’re losing investors
Listed fund manager Contango Asset Management (ASX:CGA) has also had a rough trot in recent months.
In late 2017, the company announced a pivot away from institutional clients towards retail investors and self-managed super funds.
It acquired the $110 million fund manager Switzer Asset Management in March last year, and shares in the company hit a 70c high in June 2018 before starting a rapid decline with the onset of a global stock selloff in October.
From early October until December 21, the ASX200 slumped by almost 12 per cent, as fears of a global growth slowdown accompanied by tighter central bank policy weighed on markets.
The fall was even steeper among small-caps, with the ASX Small Ordinaries index dealing by almost 17 per cent over the same period.
Over the same time frame, shares in Contango faired considerably worse, dropping by more than 50 per cent to 25 cents.
But markets steadied in January with key stock indexes recouping some losses — although they’re still well off their 2018 highs.
With investors still on edge, there’s a number of key market-moving events on the calendar this week.
Markets will be focused on the meeting of the US Federal Reserve on Wednesday night, where the central bank will update the market on its outlook for interest rates.