'Use of Multi-asset Funds on the Rise at the Expense of Passive Trackers' Finds the 2012 DCisions Report

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DCisions, the consumer insight specialist, recently published the 2012 DCisions Report. The Report has historically analysed DC asset allocation, investment strategies, governance and charges since its inception in 2006. To add colour to the analysis this year, it includes a deep-dive into multi-asset fund performance. The Report serves as a single vantage point for three different but interrelated views: the pension scheme view, the asset manager view, the consumer view.

DC in the UK has gone through some growing pains and is now entering a tricky adolescence. A focus on good member outcomes is crucial.

The recently published 2012 DCisions Report focuses on multi-asset fund performance and serves as a single vantage point for three different industry views: the pension scheme view, the asset manager view and the consumer view.

Foundation:

This year, the Report incorporates analysis of both the supply and demand side of DC investment. Importantly, it is built on the foundation of five years’ worth of insight from CuBIT, DCisions’ proprietary database, which observes over 1.2 million real portfolio holdings and in excess of 13,000 schemes. 24 top UK DC Asset managers are also analysed in the Report.

Key highlights:

  •      The use of multi-asset and target date funds is rising, primarily at the expense of passive trackers. However there is a mismatch between scheme use and asset manager confidence in these solutions: 32pc of schemes surveyed directly employ these solutions, 71pc of asset managers recommend them.
  •      The DC multi-asset fund market, where each product has a self-selected benchmark, defies meaningful comparisons. DCisions risk-graded benchmarks enable fund managers, schemes and consultants to demonstrate the value these solutions deliver on a risk-adjusted basis.
  •      Analysis of the asset manager nominated funds indicates that lower priced products, most of which are pure equity trackers, delivered a poorer risk/return balance than the higher charging funds, during the period under review.
  •      There is a disconnect between the scheme perception of who makes the default fund asset allocation decisions and the organisations that make the decisions in practice. Although 70pc of schemes said that the plan sponsor or trustee has responsibility for asset allocation, nearly 60pc use white-labelled solutions, indicating the possible strong influence of the consultant.
  •      Conventional lifestyling remains the most common approach to de-risking in the run up to retirement. Since 2007 there has been a notable increase in the de-risking period, which now stands at almost 10 years. Nevertheless, schemes are concerned about the disconnection between the lifestyling mechanism and the decumulation objective.
  •      Default funds that do not use lifestyling put members at risk: the survey found examples of older members invested primarily in higher risk asset classes.
  •      Member engagement in investment decisions is a double-edged sword. While seen as a positive characteristic and encouraged by many schemes, in a DCisions survey of 2,000 consumers (with Ipsos MORI), more than two-thirds of those who said they manage their own investments admitted they don’t even understand the basics.

DCisions’ Business Development Director Nigel Aston said: “DC in the UK has gone through some growing pains and is now entering what could be a tricky adolescence. With auto-enrolment, the financial security of some 12 million people rests on the results delivered by default funds. This Report is intended to help schemes, advisers, platforms and asset managers understand, calibrate and therefore deliver good outcomes to consumers.”

Click here to access the complete 2012 DCisions Report.

DCisions’ Reports are widely acknowledged as a leading source of independent DC investment information for plan sponsors and trustees, advisers, platforms and the UK press. Previous editions have been referenced by the DWP, The Pensions Regulator and the Government Actuary’s Department.

For any questions, email the team at info(at)dcisions(dot)com or call on 020 7297 2508.

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Kritika Ashok
DCisions Limited
020 7297 2367 2508
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