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Active funds favoured for drawdown

28 August 2018

In the battle of drawdown investments, active funds are the clear winner, according to platform provider Zurich.

An overwhelming 89% of drawdown assets are invested in active funds, while just 3% are held in passive funds, highlighting the lack of traction among passive investments in the post-pension freedom landscape. The remaining 8% of advised drawdown assets are held in cash, an analysis of Zurich’s platform has shown.

Alistair Wilson, Zurich’s head of retail platform strategy, said: “Although there’s been a boom in demand for passive strategies from people contributing to their pension pots, they’ve failed to gain almost any ground among those who have hit retirement.

“When it comes to drawdown, advisers and retirees appear to be looking for investments with greater potential to deliver growth and income, while offering a measure of protection against volatility.”

Wilson points out that the risks and complexity of drawdown call for a “more bespoke asset allocation” which advisers could struggle to achieve with a straightforward index tracker and while there is a place for passive funds in drawdown, they aren’t viewed as a “core solution.”

Zurich’s analysis also found that the top three investment sectors for advised customers in drawdown are the unclassified sector (40%), cash (10%) and UK Equity Income (6%). Global investments also proved more popular, with just 21% of drawdown assets invested in UK funds compared to 79% globally.

Wilson added: “Multi-assets, which make up the bulk of the unclassified sector, have become the go-to drawdown investment for advisers.  Large losses early on in retirement can be difficult for someone’s portfolio to recover from.  With their broad asset allocation, multi-assets can offer greater protection against market volatility, as well as the potential to provide an above inflation return.

“The dominance of multi-assets in drawdown also underlines the ongoing desire among advisers to outsource investment decisions, enabling them to focus more on customers and their needs.”