Willis Towers Watson wants innovation in DGFs

Diversified growth fundDiversified growth funds (DGFs) have been a mainstay in investors’ portfolios for some time but one firm suggests that they can incorporate different assets, which will both increase diversity and drive returns. Financial advisory firm, Willis Towers Watson, has released a research paper called ‘Diversified Growth Fund investing: is there a better way?’ which suggests a number of alternatives to the plain vanilla DGF model. These include a focus on strategic asset allocation with index-tracking implementation; high-quality alternative smart betas which can provide extra diversity in the return drivers at a low cost; and genuinely differentiated and diverse manager skill across the spectrum of alternative asset classes. Sara Rejal, senior investment consultant at Willis Towers Watson, said that the firm’s analysis of DGF performance indicates that performance is due to beta, rather than alpha. Furthermore, the firm has questioned how effective traditional, liquid DGFs will be going forward if market returns remain subdued. The firm also found that opportunistic trading detracted from returns on average and with increased product proliferation has come a deterioration in quality and a deviation from the original DGF agenda. “What is clear is that all DGFs are not created equal and there is now a wide dispersion, from those which have innovated and positioned themselves well for the more turbulent times ahead and those which have not,” said Rejal. ©2016 funds europe

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