Our Insights

About personal finance, investments and markets.
October 2, 2015

Multi-asset funds are poor long-term performers

Multi-asset funds are proving very popular with investors. They make up more than 10% of the entire UK funds market. The attraction is easy to see: most private investors are not confident enough to make asset allocation decisions and are happy to delegate this responsibility to a professional fund manager. The implied promise is that they wisely invest in different asset classes such as equities, debt and maybe gold and thus offer good risk adjusted returns. So goes the theory but does it work in practice? Morningstar has shown that the long-term performance of this fund group is disappointing. Investors beware.

Morningstar: multi-asset funds have a poor risk-return profile

Morningstar has looked at various multi-asset management categories and came to the conclusion that over a 5 year period, they materially underperform their index, while suffering in most cases from higher volatility.

Morningstar

There are basically two reaons for the poor performance:

  • Multi-asset funds are expensive and the fees weigh on long-term returns.
  • Market-timing isn’t just impossible for individual investors it is also next to impossible for professional investors.

Morningstar asks the rethorical question: are multi-asset funds worth it? Our humble answer is a resounding No.

Are there better alternatives?

Investors can simply mirror the benchmark with low cost index funds. While it is definitely more comfortable to delegate this task to a fund manager, the large performance hit of 4% to 6% per annum should make you think twice.

Putting a portfolio together with low-cost index funds isn’t hard. We are happy to show you how to do it. The biggest problem is really investor behavior, i.e. sticking to a strategy once it is put in place.

 

 

http://www.morningstar.de/de/news/141881/welche-mischfonds-sch%C3%BCtzten-das-anlegergeld-am-besten.aspx

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