The number of new managed portfolio launches has slowed considerably following a period of rapid expansion between 2018 and 2022, analysis from Morningstar has shown.

Morningstar noted that this slowdown signalled a mature market, rather than reduced adviser appetite for managed portfolio services (MPS).

Total costs have continued their downward trend due to cost savings in underlying portfolio holdings, and while this mirrors the trend for UK mutual fund costs to fall over time, the rate of decline was faster, partly driven by the greater use of passive holdings.

Morningstar said that although cost was not the only consideration for advisers, the similarity of offerings meant that cost was an area of competition and potential differentiation.

The analysis also revealed that the proportion of offerings with primarily active holdings was on a steady decline amid cost considerations, with the majority of recent launches being either ‘passive’ or ‘blended’ in style.

Open-end funds accounted for more than 92 per cent of combined average portfolio weightings due to platform implementation requirements, followed by exchange-traded funds (ETF) at 7.5 per cent, while active ETF use was rare.

Managed portfolios tended to stick mainly to equity, bond, and cash allocations, while the diversification benefits of alternatives came with a cost trade-off.

Alternatives use was primarily through liquid alternatives funds, while some providers were prepared to use listed, close-end vehicles for access to direct assets, where liquidity and premiums/discounts to NAV need to be monitored.

Morningstar noted that poor performance in bonds and equities inflicted losses across the board in 2022, but strong equity markets had driven better returns since then, especially those for riskier categories.

However, equity-heavy portfolios had found it difficult to keep pace with category indexes, amid narrow equity market leadership, costs drag, and allocation differences.

“The UK managed portfolio landscape has reached a point of maturity, with providers focusing on refining cost efficiencies and adapting to evolving adviser preferences,” said Morningstar principal for multi-asset strategies, Tom Mills.

“The shift towards passive and blended strategies highlights the growing emphasis on affordability and scalability, while the steady decline in active holdings underscores the competitive pressure to deliver value in a cost-conscious market.”

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