New report from Betafolio lambasts multi-asset funds as “a mug’s game”.
The Multi-Asset Fund Report 2021 examined 94 fund families, consisting of 420 multi-asset funds, collectively holding almost £190bn of client money.
The report states that, with very few exceptions, ‘rather than adding value through their asset allocation and fund selection, most multi-asset fund managers actually detract value’.
Betafolio outlines the findings as:
• On a risk-adjusted basis, the vast majority of multi-asset funds continued to underperform what Betafolio term ‘ No-Brainer’ portfolios;
• The number of fund families that delivered greater risk-adjusted returns than the average of ‘No-Brainer’ portfolio benchmarks was 22 over a three-year-observation period, 4 over a five-year period, 3 over a 7- and 10-year period;
• Distribution of fund costs remained broadly the same as last year. For OCF, the highest was 2.99%, the lowest 0.18%. For total cost, the highest was 3.9%, the lowest 0.24%;
• In the assessment of the potential of the multi-asset fund family to deliver value for clients in the long term, 19 achieved either an A- or A*-rating, 18 were awarded a B-rating, and the remaining 57 fund families had ratings of C or below;
• During the 2020 market downturn, there was no apparent relationship between actively managed multi-asset funds and capital protection;
Betafolio says: “The clear takeaway from this latest report is that it’s time for paraplanners and advisers using multi-asset funds to reassess their proposition to ensure their recommendations are in the client’s best interest.”
Betafolio also discusses how advice firms are “inadvertently undermining their own value”, with the median cost of multi-asset funds (1.16%p.a.) being greater than what most advisers charge for their ongoing advice (1%p.a.). “It’s time to consider what message it sends when the products recommended cost more than the advice itself.”
Nicki Hinton-Jones, CIO, Betafolio added: “As an industry, it is our responsibility to ensure that the investment propositions recommended to the clients are in their best interest. If multi-asset fund managers don’t consistently add value through asset allocation and fund selection (over and above a benchmark portfolio), what’s the justification for making clients pay a premium worth more than the advisory fees?”
