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

Money

Many multi-asset ranges 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.