The diversified growth funds market, made up primarily of U.K. assets, is set to grow 107% to £201 billion ($338.5 billion) by 2018, according to a new report published by research company Spence Johnson.
Spence Johnson estimated that 45% of the £22 billion growth over 2013 — which includes investment performance — came from defined benefit funds.
Assets in DGF strategies stood at £97 billion as of Dec. 31. The consultant said 78% of DGF assets are institutional, with U.K. defined benefit funds accounting for £51.2 billion of assets, and U.K. defined contribution adding a further £6.6 billion. Non-U.K. investors accounted for £12.4 billion of assets under management.
However, competition is intensifying as money managers develop new strategies to take advantage of the surge in assets under management in these products. Ten new diversified growth funds have been launched in the past two years alone, and money managers offering the strategies have begun to diversify outside the U.K., including Schroders, Newton Investment Management, Standard Life Investments and Baring Asset Management.
“Those U.K. funds have started to gain more and more assets from abroad,” said Will Mayne, senior consultant at Spence Johnson and a co-author of the report, in a telephone interview. He said the DGF branding is a U.K.-centric phenomenon, but the term is increasingly recognized by non-U.K. investors.
According to the report, the top five money managers — SLI, Ruffer, Barings, Newton and BlackRock — for DGFs have a market share of 84%. That is expected to decrease to 57% by 2018.
“The spoils will be more evenly shared in future,” Mr. Mayne said in the report. “Capacity constraints and the emergence of new entrants will drive a more even dispersion of assets within the DGF market.”
The report also found that six of the DGFs with more than £1 billion in assets grew by more than 30% in the last year. Three are estimated to have declined in assets.
Spence Johnson examined 34 diversified growth funds offered in the U.K. by 25 money managers.
