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‘Overwhelming majority’ of multi-asset funds found to underperform

Money-Coins-Pound-Currency-Close-up-700x450.jpgMany multi-asset funds don’t provide value for money when compared to cheaper alternatives, research from consultancy Finalytiq suggests.

The consultancy reviewed 69 risk-rated multi-asset fund ranges consisting of 320 individual funds from 50 asset managers, with a total of £117bn of assets. Fees for these funds range from 0.2 per cent to 2.7 per cent, excluding platform and advice fees.

The study compared multi-asset each ranges with a series of simple equity and bond portfolios over one, three, five and 10-year periods. The sample “no-brainer” portfolio had annual cost of 0.50 per cent and rebalanced once a year.

Metrics considered for the comparison were cost, asset allocation, return and risk.

Finalytiq found for the second year running that one fund range – Vanguard LifeStrategy – emerged as “excellent” value for money, while eleven – five more than last year – were rated good. The remaining 57 were rated fair or poor, one less than a year ago.

Some of the funds that were rated as poor included Standard Life Multi-Manager and Managed Income ranges and the Old Mutual Spectrum range. Good ratings included Aviva, Premier and L&G.

The report says: “Cost won’t be a big issue if most multi-asset fund family delivered excess risk-adjusted return, over and above a market portfolio. It breaks our heart to tell you, for the second year, that they don’t.

“Whatever level of risk you chose to take, an overwhelming majority of multi-asset funds delivered negative alpha. So, clients are being asked to pay extra for a negative alpha.”

Finalytiq founder Abraham Okusanya says the report adds weight to the FCA’s concerns that many asset managers don’t pass economies of scale on to clients when a fund grows in size.


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There are 13 comments at the moment, we would love to hear your opinion too.

  1. This is ‘news’? Stick all the fund managers in a room and, if you are lucky, they become the market average less their costs.If you are unlucky and they will have been taking tactical bets and greater risk you’ll be at the far left side of the bell curve (but you might get a free lunch or game of golf).
    “The investment management business is built upon a simple and basic belief: professional managers can beat the market. That premise appears to be false, particularly for very large institutions that manage most pension funds, endowments, and the personal assets of most individual investors, because these institutions have effectively become the market.”
    Charles Ellis, Financial Analysts Journal

  2. A bond and equity portfolio is barely multi-asset. Over the last 5 years, of course this asset mix will outperform a lot of truly diversified multi asset portfolios.

    Easy to look backwards with two of the better performing asset classes and compare to funds with greater diversification to expose some supposed deficiency.

    The whole point of multi-asset is to spread risk through a wide range of assets so funds and portfolios which further protect investors with less correlated asset classes should not be deemed as deficient in my opinion.

  3. Sequence of returns? Is the fund on a short or long term strategy. There are so many variables.
    The issue is making sure the funds fits the clients needs and attitude to risk and spreads that risk. What is acceptable to one client may not be to another.
    On one hand we are told manage the risk, on the other why are these fund out performing that one. Hindsight is a great thing. When we have the next crash the table for many of these funds will turn.
    The issue being out of the top 25% of funds this year, only 3% will be in the top 25% next year.
    There is far to much backseat driving and hindsight reporting.
    I seem to remember being taught that past performance does not give any indication to future returns.

  4. ‘The study compared multi-asset each ranges with a series of simple equity and bond portfolios over one, three, five and 10-year periods.’

    I’ve no crystal ball but I’m guessing the bond part of these portfolios won’t look quite so good over the next one, three, five and 10 year periods.

    More over-simplistic drivel to get a headline.

  5. “A bond and equity portfolio is barely multi-asset” Really?

    A benchmark has to start somewhere and managers have got tactical asset allocation wrong, hence the results.

    The point is that managers should have been investing in Bonds & US Equities but haven’t.

    Who’s to say what will happen in the future but I seriously doubt managers capability to navigate a downturn as well as a simple global bond/equity portfolio.

    I have no idea why we continue to stick up for poor results.

  6. I’m not surprised that Vanguard gets an excellent rating, given that their LifeStrategy Funds are basically a straightforward Bond/Equity mix!

  7. When you pay into an IZA you get tax re-leaf

  8. “Index funds should outperform most other stock-market investors. After all, investors, as a group, can do no better than the market, because collectively we are the market. Most investors, in fact, are destined to trail the market because we are burdened by investment costs such as brokerage commissions and fund expenses.”
    Jonathan Clements, Columnist, Wall Street Journal

  9. Nicholas Pleasure 1st November 2017 at 2:09 pm

    This reminds me somewhat of all the fuss about FTSE tracker funds in the late 1990’s. They outperformed pretty much every active manager.

    Then the tech bubble burst and they went very very quiet for a very long time.

    Multi Asset is about controolling risk for more cautious clients. It’s not about massive returns. My clients are told that we are aiming to cover inflation. That’s all. They serve a purpose – don’t criticise them for not performing like something entirely different.

  10. Surely you only truly underperform against the funds objective? My apple tastes like a banana….I don’t think its an apple…

  11. I find that an overwhelming number of articles in MM have ‘links’ that are gobbledegook.

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