Are UK fund selectors turning back to active managers as index concentration rises?

Several UK multi-managers and DFMs have moved money out of index trackers and into active funds over the last two months, citing concentration in equity indices.

Quilter Investors' Cirilium team (CJ Cowan, Ian Jensen-Humphreys and Sacha Chorley) wrote in its August commentary, published 17 September: "Over August, we added new positions in the Ashmore Emerging Market Equity ESG and Artemis US Smaller Companies funds, with both funded from index exposures."

Quilter's WealthSelect MPS made a similar shift in its quarterly rebalance (7 September). It reduced passive US exposure in favour of value and small and mid-cap equities, citing "heavy concentration within US mega-cap technology and AI-related businesses" (Professional Adviser). In fixed income it moved away from passive gilt exposure towards active global government bond strategies. It increased the Quilter Investors Global Government Bond Fund in its Managed portfolios and the Aegon Sustainable Sovereign Bond Fund in its Responsible and Sustainable portfolios (IFA Magazine). Portfolio manager Helen Bradshaw said the team remains "mindful of elevated valuations in parts of the market, ongoing concentration risks within AI-related sectors".

Tacit Investment Management (11 September): "Recently we have found ourselves reducing our index tracking exposure marginally in favour of active managers for the first time in two years as concentration risk is now a global risk in equity market indices on a scale we have not seen in our careers." Tacit calculates that "a 10% decline in the Magnificent Seven would result in a roughly 3.5% fall for the entire S&P 500 index."

Mattioli Woods (5 October): "Passive indices are increasingly concentrated in a small number of mega-cap companies." It added: "Our active US allocation complements passive holdings by providing broader exposure across sectors and investment styles", and said it "took profits from certain US growth holdings and increased our exposure to US value stocks."

Not every move is towards active. Tacit replaced Jupiter Asian Income with "a broader emerging-market dividend ETF" (18 September). Retail flows are still running the other way: "Tracker funds attracted inflows of £1.6 billion, whereas active funds saw outflows of £707 million in August," according to the Investment Association's latest monthly figures (published 1 October).