Asset allocation more important than fund selection

Research by Vanguard shows that, using performance data to the end of December 2012, fewer than one in 10 active US equity managers actually beat their index over the past five years.

In this month’s pensions spotlight, Bob Campion argues that asset allocation is now far more important than fund selection over the long term.

Mr Campion said time spent discussing and inspecting fund managers would be better spent carrying out a thorough investigation of your client’s financial circumstances instead. He said it would be better off to select appropriate savings and investment products and assessing appetite for risk by making sure the basics of investment advice are covered thoroughly.

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He pointed to long-term studies of pension fund performance in both the US and the UK, which have frequently showed stock selection matters little to overall performance. The reason he said it is so relevant for pension advisers is due to long timeframes in which pension funds are built up.

“One of the reasons passive funds are a better way to get to the desired asset allocation for a client than active funds is simply the additional cost of your client,” he said.

He added, “Getting the basics right will be key going forward, with the FCA watching carefully.”