There is a big downside to such popularity, however: mass inflows can restrict the potential gains of the portfolio, which were easier to come by when it was small and nimble.
Many funds, such as Devan Kaloo’s Aberdeen Emerging Markets and Alex Wright’s Fidelity UK Smaller Companies have had to soft-close as a result, though others are happy just to stem inflows by putting a halt to marketing.
What many investors do not realise, however, is that some of the UK’s largest funds are even bigger than they think.
In a recent interview with FE Trustnet, Newton’s Jason Pidcock responded to concerns about the size of his £4bn Newton Asian Income fund.
After it took on nearly £1bn in the first part of the year, investors became concerned about its liquidity.
However, Pidcock says that the fund has no problems in this regard and pointed out that unlike many competitors in the Asia Pacific, it is the standalone product on the strategy – there are no offshore or mirror versions of the fund that would have, in reality, made it much bigger than the number on the UK factsheet.
Charles Stanley Direct’s Rob Morgan says this should be of concern to investors, especially in emerging markets and Asia, where enormous amounts of western money has flocked to in the last decade.
Morgan points out that the offshore version of Aberdeen Emerging Markets is in fact even bigger than its onshore version, running at $14.5bn.
The UK-based Aberdeen Emerging Markets fund is £3.8bn – meaning the combined size of the two portfolios is more than £13bn.
If investors are already concerned about liquidity in a fund, he says it is crucial for them to dig a little deeper and find out how much money is being managed across the entire strategy.
"All the trades that [the managers] place are going to have to be done at the same time across all the funds," he said.
"It’s normally a centralised investment process, so you do have to look across all the different funds they run onshore and offshore. They should be looked at together, really."
"Each time they move a stock, they have to look across the entire mandate."
While Morgan (pictured) says it is important for investors to understand the actual size of the funds they are invested in, he points out it is extremely difficult for the average person to find this information.
"There isn’t a source out there for that," he said. "You can get it if you know where to look, but it’s not something hugely highlighted to investors. It is also not immediately obvious, because the offshore fund is not always the same name as the UK version, but when you look more closely, you realise it has the same manager and the same top-10 holdings."
"It requires a lot of digging around to do it."
Other examples of large strategies include the Templeton Global Emerging Markets fund, run by Dr Mark Mobius. While the UK-domiciled fund in the IMA universe has just £15m under management, the various offshore versions of the fund take total AUM well in to the billions.
The same is true of FE Alpha Manager Martin Lau’s First State Greater China Growth fund. Its UK-domiciled portfolio has around £600m under management, but two of the versions in the FCA Offshore recognised universe have combined assets in excess of $6bn.
It is not just the offshore funds that investors need to be wary of, however.
Neil Woodford’s Invesco Perpetual Income and High Income funds are generally taken as two separate portfolios, but the two five crown-rated vehicles have identical top-10 holdings, albeit in slightly different weightings, suggesting that the manager runs them on the same mandate.
Healthcare and industrials are the two highest weightings in both funds, and each have similar allocations to UK, European and North American equities.
The funds have combined AUM of more than £22bn.
Morgan says he is less concerned about funds like Woodford’s because they are trading in the highly liquid large cap space.
Both have consistently managed to outperform both the IMA UK Equity Income sector and FTSE All Share over the last one, three, five and 10 years.
Over the last decade, the High Income fund has made 221.9 per cent and the Income fund 217.64 per cent, both nearly 100 percentage points more than the sector and index.
Performance of funds vs sector and index over 10yrs
Source: FE Analytics
Another fund worth mentioning is the massive Standard Life GARS, which has more than £17bn invested in the UK alone.
The fund also serves as Standard Life’s pension scheme, adding another layer of money into the already giant fund. Additionally, there are European and US versions to think about.
Morgan says there are so many underlying strategies in the portfolio that liquidity should not be a concern, but says getting to the bottom of these to truly understand them is difficult and that any investor considering putting money into the fund needs to take that risk on board.
He adds that while funds in the more liquid large cap space can likely handle mass inflows, the industry is doing a better job of soft- and hard-closing funds that reach capacity than in the recent past.
The Aberdeen Emerging Markets fund is only available to investors who are willing to pay an upfront 2 per cent fee. First State Global Emerging Markets Leaders is stemming flows from September this year.
Morgan says investors should be watching for red flags if funds in the less liquid mid to small cap space start to become swollen with inflows.
"It's funds in small and mid cap areas that reach a very large size that I’d be much more concerned about," he said.
Among those that have soft-closed are Alex Wright’s £311m Fidelity UK Smaller Companies fund, which can no longer be bought by new investors.
Harry Nimmo’s £1.2bn Standard Life UK Smaller Companies fund has also soft-closed, but remains open even to new investors on many of the UK’s largest platforms, including Bestinvest and Hargreaves Lansdown.
