Shift from active to passive asset managers slowing, UBS says

European asset managers are facing better conditions in the second half of the year, UBS said on Wednesday, suggesting UK funds Schroders and Ashmore would benefit most.

UBS claimed that 2018 has emerged as "a positive year" for active equity fund managers, which have topped their benchmark by a weighted average of 22 basis points, bang on the 44bp annualized average annual outperformance.

On the other side of things, UBS highlighted that passive funds had generated an average underperformance of nine basis points, weaker than the 14bp of average relative annual underperformance over the past five years.

Research by the Swiss bank's Quant Team highlights the fundamental reasons why a higher volatility environment should be expected that will lead to an increasing dispersion of returns: "In an environment where the dispersion of single stock returns increases, data show active managers outperform their benchmarks (as a group), after fees. While improving relative performance amongst active fund managers is unlikely to reverse the trend of fund flows into passive strategies, we do think that it may serve to mitigate/slow the shift to passive funds."

The broker believes Schroders has been "well positioned" to generate long-term, over-the-cycle shareholder value for its investors and that Ashmore's exposure to emerging markets debt will continue to drive higher client inflows across the second half of the year.

UBS reiterated 'buy' ratings on both UK fund managers with a target price of 3,113p for Schroders and 362p for Ashmore.

Jupiter was kept at 'sell' due to continuing outflows from its popular Dynamic Bond Fund, "which we expect to drive further downward earnings revisions in the coming quarters".

Examining the performance of more than 7,500 equity investment funds sold into Europe in the first half of 2018, UBS felt confident the "positive start" to the year would continue throughout the second half.