Advisers who use multi-asset funds are choosing bad investments that undermine the value they add for clients, according to Abraham Okusanya, of consultancy firm Finalytiq.
Mr Okusanya said that while many advisers took the view, which he agreed with, that financial planning services add more value for a client than investment management work, those same advisers tend to charge less for their financial planning work than they pay to multi-asset fund managers.
He said advisers typically charge 1 per cent of the client’s assets, while the average cost of the multi-asset funds he examined was 1.15 per cent.
Mr Okusanya tested the performance of multi-asset funds in the Investment Association fund universe against a benchmark of passive investment products that are rebalanced annually, and found that only one in seven multi-asset funds consistently outperformed the passive “no brainer” benchmarks portfolio.
Data from FE Analytics shows the Volatility Managed sector has returned 15 per cent over the past five years.
He said: "The vast majority of multi-asset funds continued to under-perform the No-Brainer portfolios on a risk-adjusted basis. Over a five year period, only one in seven fund families delivered greater risk-adjusted return than No-Brainer portfolio benchmarks which made up of simple global equity/bond indices re-balanced annually.”
Mr Okusanya added: “In that regard, with a very few exceptions, multi-asset funds are a mug’s game. These exceptions only prove the rule. Low-cost propositions available through Vanguard, Blackrock and a few others tend to deliver better returns for clients.
"The implication of this report’s findings is that advisers using multi-asset funds have to reassess their proposition. This is particularly the case where costs are meaningfully higher than the aforementioned low-cost alternatives. It’s clear that many investors in many of these high-cost multi-asset funds are being taken for a mug.”
Alan Steel, chairman of Alan Steel Asset Management in Linlithgow said: “The vast bulk of ‘multi-asset funds’ have been frankly abysmal. We weren’t impressed by their presentations. So stayed well clear.”
He said he preferred to invest in funds such as the Troy Trojan fund, which is run by Sebastian Lyon, and the Miton fund range run by David Jane, that invest directly in a range of assets, rather than invest in funds run by other managers.
david.thorpe@ft.com
