Research consultancy Finalytiq found multi-asset funds were poor investments when compared with a passive alternative, and were run on strategies that ate into investor returns, after carrying out research in the space in July.
The firm analysed 91 fund families consisting of 402 individual funds in which a £148bn of client’s money is invested.
It then compared them with a simple equity-bond portfolio dubbed 'no-brainer portfolio' and Vanguard LifeStrategy.
Regardless of the period examined, Finalytiq said, the vast majority of funds underperformed both benchmarks.
Abraham Okusanya, founder of Finalytiq, said: "The clear majority of multi-asset fund families have a sub-optimal risk-adjusted return profile when compared with a simple equity-bond portfolio dubbed 'no-brainer portfolio' and Vanguard LifeStrategy.
He said: "The implication here is that the vast majority of multi-asset funds not only fail to add value, they detract from the return. For every unit of risk taken by an investor, multi-asset funds delivered less than the market portfolio benchmark."
Finalytiq found the median OCF was 0.96 per cent, but there were instances of fees as high as 2.78 per cent.
This was before adviser charge (typically 0.8 per cent), and platform fees (typically 0.3 per cent) were added, leading to total ongoing fees close to 2.5 per cent, it said.
A table of his finding is below.
Mr Okusanya said: "Advisers have a regulatory obligation to ensure that their recommendations are in the client’s best interest.
"Cold hard data shows that most multi-asset fund managers don’t consistently add value through asset allocation and fund selection. So what’s the justification for making clients pay a premium for incompetence?"
Mr Okusanya’s comments come in the context of the Investment Association (IA) reporting that mixed asset funds were the second most bought of all sectors in its universe in the 2017 calendar year, with net sales of £13.5bn.
But Jason Hollands, head of business development and communications at wealth manager Tilney Group, which has a range of multi-asset funds, said there was a place for the funds, particularly for clients with a smaller pool of assets.
He said: "Multi-asset funds provide investors with a diversified 'one stop shop' solution which is managed to a particular risk and goal profile.
"In particular, we see our range as making Tilney’s discretionary investment management capabilities available to a wider range of investor, including Bestinvest clients, with the minimum threshold being just £500."
He added: "The underlying funds are selected from across the whole market, are not restricted to passives and often include funds a direct investor could not purchase themselves as they are only available to professional investors."
Marcus Brookes, head of multi-manager investments at Schroders, said his firm has recently launched a range of products in partnership with Distribution Technology, and using the Distribution Technology risk profiling tools, as he hopes this will offer a more bespoke multi-asset product set than is offered by traditional multi-asset funds.
Mr Brookes feels the product can be more tactical in terms of asset allocation than a traditional multi-asset fund would be.
Paul Milburn, investment analyst at Lowes Financial Management in Newcastle said he used multi-asset funds in some of his lower risk model portfolios, where he hoped clients would benefit from the tactical asset allocation decisions managers may make during different periods of the investment or market cycle.
He added: "Multi-asset funds can also provide a further level of diversification within our own model portfolios, particularly those which invest in what we would call more esoteric investments which we wouldn’t or possibly couldn’t allocate to directly ourselves. When selecting multi-asset funds we therefore look to ensure that they offer at least one of these benefits."
david.thorpe@ft.com
