Strong rise in diversified growth fund assets

Mixed sweetsInvestor caution about the economy has seen assets in diversified growth funds rise fivefold over five years.

Assets have risen from £25 billion (€35 billion) in 2010 to £117 billion today, says Punter Southall Investment Consulting in a study of the fund in the UK.

However, Steve Butler, managing director at Punter Southall, warns about risk and returns in the sector.

“Indeed, 35% of the universe has produced a lower than ideal return and 20% taken more risk than we would have liked to see. It is vital to understand the markets’ offering, make sound investment decision and avoid the pitfalls.”

Despite this, Butler says he is positive for diversified growth funds.

According to the firm, the industry is forecast to reach £200 billion over the next three years after a rapid period of development.

Over a three-year period, diversified growth funds achieved monthly returns of between -3% and 4%, providing a “much smoother ride” than the FTSE All Share, which achieved monthly returns of between -7% and 7%.

Owing to this significantly reduced level of volatility and drawdown risk, says Punter Southall, these funds have grown in popularity, with institutional investors currently holding £117 billion of assets in them as they respond to continuing market uncertainty.

Six new products were launched during the first quarter of 2015, adding to the 26 products with a three-year track record, and 17 products with five years.

Over the last quarter, assets in these funds grew by £6.5 billion.

Charles Stanley had the largest percentage increase (125%) in assets over the quarter of £305 million; BlackRock replaced Barings as the fourth largest manager of diversified growth fund sterling products behind Standard Life, Ruffer and Newton. Barings has seen significant asset outflows following the departure of key portfolio managers during the second half of 2014.

Butler says: “As expected in the current rising market, the MSCI World Index achieved higher returns than DGFs [diversified growth funds]. However, DGFs showed their value during December and January when the volatility of the markets meant the majority of DGFs outperformed the MSCI World Index.”

According to the research, over a three-year period, DGFs achieved monthly returns of between -3% and 4%. The MSCI World Index achieved monthly returns of between -4% and 8%. Again, as with the FTSE All Share, the return from the funds is described as being smoother than the index return.

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