Passive fund-of-funds strategies have become increasingly popular with financial advisers over the past year as active funds have been hit by falling research on FE Analytics.
The move from active to passive is a well-established trend in the asset management industry. Some 15.8 per cent of the Investment Association universe is now held in index trackers, up from just 6 per cent a decade ago.
However, analysis by FE Trustnet suggests that this trend is also firmly in place in the multi-manager space as a handful of passive funds-of-funds are being heavily researched by the UK’s professional investors.
Source: FE Analytics Market Intel Tool
The FE Analytics Market Intel Tool – which monitors research trends of thousands of financial advisers, wealth managers and other professionals – shows that passive offerings have become the most researched portfolios in the multi-manager universe.
As the table above shows, six of the 10 most popular fund-of-funds over the past 12 months are portfolios of passive funds rather than active ones.
This is a bit of change from the situation one year ago. Then, Vanguard LifeStrategy 60% Equity still had the most FE Analytics factsheet views but only three of the 10 most researched funds held passive strategies.
Our data also shows that the five most research passive multi-manager funds accounted for 10.6 per cent of all multi-manager factsheet views on FE Analytics over the past year.
In contrast, the five most viewed active multi-manager factsheets represented only 6.9 per cent of views.
A look at the performance of the £5.3bn Vanguard LifeStrategy 60% Equity fund shows how investors who backed the portfolio of underlying Vanguard index trackers at launch in June 2011 have not been disappointed. In all, 3.4 per cent of multi-manager research over the past year has gone to this fund.
Since inception, the four FE Crown-rated fund has generated an 86.87 per cent total return. This ranks it in the top quartile of the IA Mixed Investment 40-85% Shares sector and a bespoke 731-strong sector of multi-asset funds-of-funds.
Performance of fund vs sectors since launch
Source: FE Analytics
The fund is also in both sectors’ top quartile over one, three and five years while the other four members of the Vanguard LifeStrategy also have a track record of outperforming their average active peer.
All five Vanguard LifeStrategy funds, which are automatically rebalanced to keep in line with target allocations, are popular options with investors since their launch in 2011 and have become the mainstay of many advisers’ portfolios. They have ongoing charges of just 0.22 per cent.
The L&G Multi-Index range, which is managed by Justin Onuekwusi, Andrzej Pioch and Francis Chua, has also benefitted from high levels of adviser research over the past year.
L&G Multi-Index 5 and L&G Multi-Index 4 are in the top 10 for FE Analytics multi-manager factsheet views over the past 12 months. One year earlier, they were ranked 14th and 19th respectively.
All five of the L&G Multi-Index funds, which launched in August 2013 and have ongoing charges of 0.31 per cent, have been given a ‘Recommended’ rating by Square Mile Investment Consulting & Research.
The group’s analysts added: “L&G is a market leader within index funds and one of the largest providers in the UK. Their range of index funds is broad and this permits the managers to build portfolios that are welldiversified across asset class and via regions.
“The resources at L&G are deep and strong across asset allocation, fund management and risk management. We think this gives them a good platform from which to build multiasset solutions. The lead manager of the funds is Justin Onuekwusi and he is experienced in managing risktargeted and other multiasset products.”
However, the multi-manager space remains a predominantly active one and the advisers using FE Analytics have not completely shifted their attentions towards passive solutions.
Premier Multi-Asset Distribution has been the fourth most researched multi-manager portfolios over the past 12 months, accounting for 1.7 per cent of all fund-of-funds’ factsheet views on FE Analytics.
This £1.5bn fund, which is managed by David Hambidge, Ian Rees, Simon Evan-Cook and David Thornton, has outperformed its average IA Mixed Investment 20-60% Shares peer over the past one, three, five and 10 years. Over the past decade, its total return has been almost 75 percentage points higher than the sector average.
Premier also has two other funds in the top-10 for FE Analytics factsheet views – Premier Multi-Asset Growth & Income and Premier Multi-Asset Monthly Income – which are managed by the same team.
Performance of fund vs sector over 10yrs
Source: FE Analytics
Jupiter Merlin Balanced Portfolio is found in sixth place while Jupiter Merlin Income Portfolio is in 11th. The funds are some of the best known multi-manager offerings in the UK and are headed up by FE Alpha Manager John Chatfeild-Roberts, Algy Smith-Maxwell, Amanda Sillars and David Lewis.
Like the Premier multi-managers, the Jupiter Merlin team is resolutely in favour of active management. Despite heavy inflows into index-trackers products and challenging conditions for stockpickers, Smith-Maxwell recently reminded investors not to overlook active funds.
“At a time when markets have been climbing a wall of worry for over 10 years now, I think there is no better time to be investing in truly active managers than today,” he said.
“Equity markets at a headline level have travelled a very long way and we know that earnings have got to come through for those earnings to be justified. But underneath the bonnet there are stock-by-stock opportunities that are really interesting.”