"Whilst assets are in recovery mode, sales are not," says Yoon Ng, the report’s lead analyst. There are marked differences across the European Union. Distribution is to blame for weak sales in France, Germany, and Spain. Where banks are the key distribution channel, their focus on gathering deposits to shore up their own capital, or offering guaranteed funds to ultra conservative investors, is hurting FoF sales.

There are still plenty of positive opportunities for fund groups and sales teams to latch onto. Balanced FoF portfolios still rule by overall assets, yet Cerulli Associates spots a distinct movement towards global equity and emerging market portfolios.

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FoF managers can regularly outperform their single-manager counterparts in both sectors, the report says.

Funds of passive funds are piling pressure on traditional FoF charging structures, particularly in the UK, where Barclays and Seven Investment Management have built substantial asset bases.

Cerulli said it expects the "fund of ETF" trend to spread, as German fund houses are already testing the waters.

"The surprise is that so many big groups that offer traditional mutual funds and ETFs have not tackled this market. We’re convinced it will be a new battlefield," comments Ng.

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According to the report, the FoF industry is also experiencing the sales polarization effect seen in the wider fund market over the last two years. Big alpha-delivering FoFs are snapping up nearly all the sales, leaving those without performance records or distribution clout to scrabble for leftovers.

For single funds considering FoFs as a distribution channel in their own right, identifying drivers of repeatable outperformance is key to making FoF managers take note, says the report.

European FoF managers tend to look at local funds first, other UCITS or non-European funds second, when making their selections. Only a handful of groups have genuine cross-border appeal, the report concluded.