Multi-asset funds sold in Europe have failed to live up to their promise that they will act as a buffer against unsettled markets, according to analytics company Cerulli Associates.
The latest report from Cerulli found, on average, multi-asset funds had made a loss between the start of July 2015 to the end of June this year.
According to the firm, a number of the funds within the asset class are highly correlated to the stock market, with some aligned to equities by as much as 90 per cent.
Given the tricky market conditions, the managing director of Cerulli’s European arm, Barbara Wall, claimed this defeats the key objective of the asset class, which is to provide stability.
She said the asset class has “failed its first real test” and argued investors are beginning to take note, adding that while a single year is not enough to truly judge performance, it does serve as an indicator.
Ms Wall advised managers of poorly performing European funds to consider cutting fees, pointing out that ongoing charges for multi-asset investments in the UK have dropped 16 basis points on average over the past two years.
Angelos Gousios, an associate director at Cerulli Associates, warned that multi-asset managers charging “unjustifiable” performance fees are at risk of being marginalised.
“Fund buyers will not hesitate to switch to less expensive alternatives if performance and risk targets are not met,” he said, adding cheaper, more innovative strategies such as smart beta multi-asset funds are on the increase.
However, Cerulli was generally optimistic about the longer term prospects for multi-asset funds, with Mr Gousios suggesting the asset class will be increasingly incorporated in defined contribution pension schemes in the UK.
“But inflows are likely to be more concentrated from now on, with managers that fail to deliver falling by the wayside.”