25 Sep Active Investment Managers Are Letting Down Investors, Again.
A recent study has shown yet again that most active multi-asset fund managers don’t add any value through their asset allocation and fund selection. In fact, they detract from it.
The 2019 instalment of the FinalytiQ Multi-Asset Fund Report is an in-depth analysis of 89 fund families, consisting of 391 multi-asset funds, which collectively hold £125.7bn of client money.
The vast majority of multi-asset funds continued to under-perform a simple passive portfolio of equities and bonds on a risk-adjusted basis. Over a 5-year period, only 1 in 7 fund families delivered greater risk-adjusted return than the corresponding passive portfolio benchmarks which are made up of simple global equity/bond indices re-balanced annually.
The report’s authors note: ‘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.’
Given that high-cost multi-asset funds systematically underperform simple, low-cost equity/bond benchmarks, we have to ask why some advisers continue to recommend them.
In a recent article, Wall Street Journal’s personal finance columnist Jason Zweig suggests that one reason advisers continue to value investment management over financial planning expertise, is that they aren’t confident enough in their own value proposition.
‘Investment management is a commodity whose market price has dropped close to zero, whereas the advice and judgment of a good financial planner can do wonders for your net worth’
The report reiterates this point by noting that ‘we firmly believe that advice is infinitely more valuable than investment management, so advice costs should be more than product costs. Fund managers clearly don’t seem to recognise this. They continue to price funds higher than advice.’