Insurers have been told to review the managers of poorly performing with-profits funds, as a consultancy found "significant variations in investment performance" largely based on asset allocation.
Barnett Waddingham said weaker performers in a generally strong market should rethink the way they allocate their assets in order to close the gap to stronger funds and achieve better outcomes for their clients.
In its recent research, the consultancy found the majority of with-profits funds were standing up to scrutiny as they achieved returns in excess of inflation and interest rates over the medium term investment horizon.
It found 51 of the 52 funds it surveyed had achieved a positive overall return over the last year, and all of the funds the consultancy has longer-term data for achieved a positive return over five years.
Over a one-year and five-year period, the average fund performance was 6.22 per cent and 6.85 per cent respectively.
However, performance was still varied, the firm stated.
Performance of managers within asset classes was the largest source of variation between funds, with the larger funds generally benefiting from stock selection.
The research found about a fifth of the smaller funds had outperformed their larger counterparts and said there was a growing appetite for equity over gilts among the largest of funds.
Equity returns, which typically accounted for 30 per cent of the funds, ranged between 2.05 per cent and 14.26 per cent per annum over five years, with the average fund returning 11.04 per cent.
By comparison, the FTSE 100 had returned 10.26 per cent over the same period, the firm stated.
Scott Eason, partner and head of insurance consultancy at Barnett Waddingham, said: "The reputation of with-profits funds has been variable over the years.
"However, our research clearly shows that solid investment performance has been achieved and insurance companies are standing up to scrutiny to provide policyholders with good investment returns.
"However, there are still significant variations in investment performance and we would like to see the weaker performing funds review their asset allocations and manager selections to close the gap. This will enable all with-profits policyholders to benefit from strong, smoothed returns."
The consultancy has information on 52 funds from 20 insurers, covering £100bn of assets, for the past year, and on 40 funds for the past five years.
Tom Selby, senior analyst at AJ Bell, said: "Given that post-crisis we have seen a bull market run approaching nine years, it is not surprising investors in most funds, including with-profits, have enjoyed above-inflation returns.
"Indeed anyone failing to do this over the medium or longer term would face some difficult questions.
"There is nothing stopping them delivering for investors in theory, but the lack of transparency, inflexibility and previous scandals have all undoubtedly harmed the product."
Nathan Long, senior analyst at Hargreaves Lansdown, said not all with-profits funds were equal: "Some still retain a higher weighting to shares than others making them more likely to outperform in a rising stock market.