Executive summary

• In today’s market, many advisers’ model portfolios (CIPs) lean heavily on mega-cap growth companies, particularly through passive index strategies.  

• While these investments have performed well over the past decade, a concentrated focus on mega-caps can leave portfolios vulnerable when market trends reverse.

• Downing Fox offers a diversified alternative, designed to complement existing portfolios by reducing overexposure to current megatrends and supporting more balanced, resilient portfolios for clients.

Key considerations for advisers

Identifying over-reliance on mega-caps

The investment world has seen a series of megatrends that dominate for years, only to eventually reverse, often leaving concentrated portfolios exposed.

Current portfolios may rely heavily on the mega-cap growth trend, driven by well-known ‘MAG 7’ stocks and further reinforced by the popularity of passive index investing.

Mega-cap growth has become synonymous with success for many investors, and it’s easy to see why. These companies—often household names—have delivered consistent growth, buoyed by technological innovation and increasing market dominance.

However, history has shown that no trend lasts forever. When these trends reverse, they can do so sharply, catching many investors off guard.

For advisers, the key is to proactively identify any over-reliance on such trends before a downturn erodes client wealth.  

Advisers should ask themselves:

• Is their CIP overly reliant on a single, long-standing trend?

• What are the risks to clients if this trend reverses?

• Do new products entering the market add to this concentration risk?

A prudent approach involves analysing the weightings within CIPs and evaluating whether they are balanced across different sectors, geographies, and market capitalisations.  

This kind of analysis can help advisers avoid concentration risks and ensure their clients' portfolios are positioned to withstand different market environments. Diversification is the cornerstone of effective risk management, and in times of market uncertainty, it becomes even more crucial.

The Downing Fox advantage: Supporting advisers with structural diversification

Downing Fox is designed to complement existing portfolios by intentionally balancing across market caps, thereby avoiding the inherent bias toward mega-caps found in many passive and multi-asset products.

How Downing Fox benefits your clients

Clients benefit from the Fox portfolio’s diversified, balanced approach that aligns with long-term stability rather than short-term market trends.  

This structure supports:

• Reduced volatility in down markets: Fox has shown resilience in recent market corrections, offering a steadier performance during volatile periods. By avoiding an overconcentration in mega-caps, Fox helps to reduce the overall risk in clients' portfolios, providing more stability in turbulent times.

• Access to a broader set of growth opportunities: By including a mix of small, mid, and large-cap companies across various sectors, Fox provides clients with exposure to a wide range of growth opportunities that are often overlooked in mega-cap-heavy portfolios. This balanced approach helps capture growth from different parts of the market.

Key benefits for advisers include:

• Strengthened client relationships: By providing a more diversified portfolio option, advisers can demonstrate proactive management and a commitment to reducing risk. This helps build trust and strengthens relationships with clients, who can see that their adviser is actively working to protect their investments from overexposure.

• Reduced stress and greater confidence: Advisers can feel more confident in the resilience of their clients' portfolios, reducing the stress that comes from market volatility. Knowing that portfolios are diversified across market caps and sectors allows advisers to focus on strategic planning rather than reacting to market swings.

• Differentiation in a competitive market: Offering a unique and diversified solution like Downing Fox allows advisers to stand out in a crowded market. Clients value advisers who are thoughtful in their approach and who offer solutions that are tailored to long-term stability, rather than simply following market trends.

What’s next?

If you are seeking to diversify your CIP and reduce the risk of overexposure to today’s mega-cap trends, consider how Downing Fox’s approach can support your business goals.  

Our team is ready to work with you to understand your clients’ needs and provide solutions that fit seamlessly into their existing portfolios.  

Contact us today to learn more about incorporating MGTS Downing Fox Funds into your advisory portfolio, providing your clients with a robust alternative that complements and strengthens their overall financial strategy.

Opinions expressed represent the views of the fund manager at the time of publication, are subject to change, and should not be interpreted as investment advice.

Important notice: This article has been prepared for professional investors and has been approved as a financial promotion in line with Section 21 of the FSMA by Downing LLP (“Downing”).  

Capital is at risk and investors should note that their investments and the income derived from them can fall as well as rise and investors may not get back the full amount invested. Past performance is not a reliable indicator of future performance. Any subscription to the fund should be made on the basis of the relevant product literature available from Downing or from the ACD, Margetts Fund Management Ltd; and your attention is drawn to the charges and risk factors contained therein. Downing does not offer investment or tax advice or make recommendations regarding investments.  

Downing is a trading name of Downing LLP. Downing LLP is authorised and regulated by the Financial Conduct Authority (Firm Reference No. 545025). Registered in England and Wales (No. OC341575). Registered Office: 10 Lower Thames Street London EC3R 6AF.