Both vehicles are managed by Roland Arnold, who seeks to invest in high quality, growing businesses.

Square Mile analysts said they consider Arnold to be a “pragmatic” investor who has proven to be adept in adjusting the risk profile of the strategy underlying both the fund and the trust at appropriate times during the market cycle.

The £633.1m BlackRock Smaller Companies Trust currently trades at an 11.7% discount to net asset value (NAV), according to the AIC.

Analysts at Square Mile conducted 66 interviews with investment professionals from 37 asset management groups during February.

Elsewhere, the Janus Henderson Global Equity Income fund has lost its A rating after a period of “challenged” performance.

According to FE Fundinfo, the strategy has returned 43.5% over the last five years compared to the IA Global Equity Income average 52.3%.

The analysts noted that the fund has always taken an approach that is highly defensive, non-cyclical and with a focus on income.

“However, its total return profile has not met [analyst] expectations and [Square Mile] no longer have sufficient conviction in the strategy to justify its continued inclusion in the Academy of Funds,” they said.

Matthews Asia Pacific Tiger fund has also been stripped of its A rating, having previously had its rating suspended in December following the departure of manager Sharat Shroff.

Shroff was replaced by Inbok Song as lead manager, who works alongside the firm’s CIO Sean Taylor.

The Square Mile analysts said: “Ms Song and Mr Taylor are in the process of re-invigorating the strategy, which includes adjusting the portfolio construction process. Although Square Mile’s analysts believe this to be a sensible course of action, as yet it is unproven.”

Schroder US Equity Income Maximiser and Schroder Income Maximiser funds have both retained their A ratings, despite the recent departure of manager Mike Hodgson.

Co-manager Scott Thomson was appointed as head of the team. Square Mile said its analysts have a high regard for Thomson and confirmed the two funds’ ratings would remain unchanged.

Similarly, UBAM Positive Impact Equity fund has retained its ‘Responsible A’ rating despite senior portfolio manager Rupert Welchman’s decision to exit the firm in April.

Despite his departure, the Square Mile analysts believe the team is well resourced and they have a high regard for the strong team-based process underpinning the strategy.

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He will share the role alongside current Titan AM CEO Paul Hunt, while also retaining his role as head of Square Mile.

The FCA approved Titan’s acquisition of Square Mile on Friday (23 February).

The acquisition, first announced in June last year, includes the £2.5bn in assets under management held across Square Mile’s MPS solutions.

Square Mile will continue to operate under its own brand and management, while supported by Titan Wealth.

See also: Square Mile ousts trio of BNY Mellon funds from ratings academy

Romer-Lee said: “The completion of Titan Wealth’s acquisition of Square Mile marks a very exciting milestone, both for our business and the wider Titan Wealth group of companies.

“The backing this brings means that we can forge ahead with our commitment to strengthen and broaden the services we provide to our clients and will help us achieve our long-term growth ambitions.”

This article was written for our sister title Portfolio Adviser

The strategies, including the BNY Mellon Global Dynamic Bond, BNY Mellon Sustainable Global Dynamic Bond and BNY Mellon Global Dynamic Bond Income fund, were placed under suspension in June 2023. Ella Hoxha, formerly at Pictet, took over as fund manager in December of last year.

Square Mile stated that after meeting with Hoxha and discussing the changes to the portfolios, its team believes “it will take time to fully appreciate the impact of those changes”. In addition, Square Mile found the medium-term returns “not in line with expectations”, resulting in the funds’ removals.

Jupiter Value funds, including the AAA-rated Jupiter UK Special Situations fund and A-rated Jupiter Global Value Equity fund, were suspended after Ben Whitmore and Dermot Murphy announced their departure for July 2024 to create their own investment boutique. While JO Hambro Capital Management’s Alex Savvides will take on the UK equities portion of the funds, there is still discussion over the global equity assets and whether they will transfer with Whitmore, Square Mile said.

See also: RLAM and Artemis funds added to Square Mile academy

Despite the three funds dropped from BNY Mellon, the BNY Mellon Futurelegacy fund range gained a responsible Positive Prospect rating. The group of five funds are managed by Newton Investment Management and launched in February of last year.

“In what is an under-represented area of the market, Square Mile believes this range has all the attributes necessary to provide competitive long-term returns while following the team’s sustainable investment approach,” Square Mile stated.

The Brown Advisory Global Leaders fund was awarded an AA rating, managed by Mick Dillon and Bertie Thomson. The fund, launched in 2015, comprises 30 to 40 holdings which Square Mile claims is “differentiated from its peers and a very solid offering for long-term investors”.

Aikya Global Emerging Markets gained a Responsible A rating while Rathbone Greenbank Multi-Asset portfolios obtained a responsible recommended rating.

Three strategies, the CT UK Social Bond fund, Artemis SmartGARP Global Emerging Markets Equity fund, and WS Montanaro UK Income fund retained their ratings despite changes in management.

In total, Square Mile conducted 52 interviews with 31 asset management groups in the month of January.

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This has therefore created a new dynamic in the decision-making process between using a multi-asset fund and a model portfolio service (MPS). While, within multi-asset mandates, trading occurs entirely within the fund, with no direct trading from the investor, model portfolio services are tracked as the individual investor making changes to their investments each time the holdings shift.

While these funds would be exempt from capital gains tax if they are within a pension or ISA, if they are instead held in a general investment account, the trading occurring within an MPS would be subject to capital gains tax if it exceeds the new limits of £6,000 and soon-to-be £3,000. Meanwhile, trading within a multi-asset fund would be unaffected for the end investor.

Gillian Hepburn, commercial director at Benchmark Capital, said: “If you’re holding the MPS, just within a general investment account, then that is subject to capital gains tax every time the model rebalanced, or if you sell out of the model, for example.

“So, you could argue that when you’re giving financial advice, you need to think very carefully about whether the client is likely to be subject to capital gains tax.”

See also: IHT take hits £5.7bn as government mulls changes in the Budget

In calculations by Hepburn, the maximum this would add to a higher-rate tax payer would be £1,260 for the 23/24 year, and £1,860 for the 24/25 year.

“What we’ve seen is, many advisers will always fill up the pension bucket, and then the ISA, and then the general investment account,” Hepburn said.

“The challenge is that, with capital gains tax allowances reducing, there will be more people who are likely to have to pay capital gains tax if they’re holding a model portfolio within a general investment account. This is one of the reasons that we think that more clients are moving towards using multi-asset funds.”

Simon Evan-Cook, founder and fund manager of the VT Downing Fox Funds, said when he was setting up his new product and deciding whether to launch an MPS or a fund of funds, the implications of capital gains tax was a key deciding factor.

“Having recently set up from scratch, I had the choice of going down the MPS route or launching a fund of funds range instead. I chose the latter because I genuinely believe they are by far the better option for advisers and their clients,” Evan-Cook said.

“CGT is one of the big reasons for this. Within our funds of funds, when I sell a holding I can do so safe in the knowledge that it will have no CGT implications for any of its holders, regardless of whether they hold it in a tax wrapper or not.

“This is not the case when running a non-unitised portfolio like an MPS or most DFM offerings, where selling a large holding that has gained a lot over the years may inflict painful tax implications.”

While the fund managers themselves are not responsible for the tax implications for investors, advisers who are choosing funds for investors are holding these factors in close consideration.

“From an adviser’s perspective, unwittingly triggering a needless tax liability is not a great look, particularly for their largest and most valuable clients,” Evan-Cook said.

“The risk of doing this is considerably lower when holding a fund of funds instead of an MPS. This is a factor we know many advisers are thinking more about, and is partly why the pendulum is, we think, beginning to swing back towards unitised portfolio offerings such as funds of funds.”

MPS gained popularity due to their transparent nature, with investors able to see a full breakdown of their underlying investments at any one time rather than relying on a quarterly, or monthly statement. There are pros and cons to both, with investors in an MPS owning the underlying units of these holdings themselves, but paying a management fee plus the charges from the underlying funds. The costs of managing a fund of fund is packaged up into its ongoing charges figure.

For advisers, concerns around switching out of an MPS and into a multi-asset fund would likely only come after clients had maxed out their ISA allowance of £20,000. The same is true of their clients’ pensions, which have an annual tax-free allowance of £60,000 from April 2024, up from £40,000 previously. This number does however reduce for those with an income over £260,000, whose allowance decreases by £1 for every £2 above the threshold up to £320,000 in income. Funds left over after these categories would likely fall into general investment accounts.

Jock Glover, strategic relationships director at Square Mile Investment Consulting and Research, said: “It does mean that the tax burden could be substantial because, at the start of the reduction process, HMRC was estimating another 235,000 people will end up reporting CGT. Their estimate was that by 2025 these tax changes would generate another £1.2bn for the Treasury.

“In other words, for an MPS manager, it isn’t their role to worry about the tax planning for the underlying client. That is the role of their adviser. In terms of the impact on the underlying clients, it will depend on what wrapper their assets are in. If their MPS is wrapped in a tax efficient vehicle like a SIPP or an ISA, then there is no impact, under the current tax rules. If it is held in a general account, then they, or their adviser, will need to manage any capital gains that are created over the course of a tax year by the underlying manager selling holdings from the portfolio.”

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‘Income funds’ was the most-searched category on the firm’s site the previous quarter but went neck and neck with capital growth funds in the fourth quarter, with each accounting for 40.6% of searches over the three-month period.

There was a market rally among growth funds investing in areas such as technology, smaller companies and biotech after the US Federal Reserve hinted at an end to interest rate hikes in December, which could explain the renewed interest from advisers.

However, Aegon Diversified Monthly Income still took the top spot for the most-searched fund over the final quarter of 2023, accounting for 3.5% of all views – increasing by 1.7 percentage points from the previous quarter.

The £821m fund was up 10% in 2023 and offered investors the highest yield in the IA Mixed Investment 20-60% Shares sector at 6.1%.

See also: Square Mile: Nine funds poised for success in 2024

In at second was Amati UK Listed Smaller Companies, which gained a considerable amount of attention in the fourth quarter considering UK equities have been out of favour for some time.

Indeed, two UK sectors – IA UK All Companies and IA Sterling Strategic Bond – were the most searched groups in the final three months of 2023, accounting for 11.8% and 10.4% of all searches.

After 28 months of divestment from IA UK All Companies funds (resulting in £19.3bn of outflows), Square Mile business development director Scott Dakers said this could represent the beginnings of a return to the sector.

“The UK, which has been unloved by asset allocators for several years, saw an increase in interest, possibly suggesting a shift to a more positive sentiment towards our domestic market,” he said.

The most searched responsible funds – Wellington Global Impact Bond, FSSA Asia Focus and CT UK Social Bond – all invested in fixed income, which is unusual for ESG funds according to Dakers.

“Historically, the responsible investment field was dominated by funds investing in equities and this shift perhaps reflects the greater diversity of options available and the maturity of responsible investment as a whole,” he added.

This article was written for our sister title Portfolio Adviser