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Vanguard dominates multi-asset flows as passives prove popular

Inflows remain strong as investors seek funds that offer the perfect mix of low cost, low volatility and strong diversification.

Vanguard dominates multi-asset flows as passives prove popular

In November 2017, multi-asset funds were on track to outsell both equity and bond funds, and deeper analysis of the sector showed passive portfolios were the most popular. However, since then multi-asset funds have had a harder time, becoming, in the opinion of some, far too defensive. Nevertheless, figures for multi-asset flows demonstrate the continuing popularity of the class. And passive multi-assets are in the list of best-selling multi-asset funds.

Almost £7 billion had flowed into multi-asset investments in the first seven months of 2017, outstripping the £5.2 billion that went into equity funds and the £5 billion that went into bond funds, according to figures published at the time by the Investment Association. Multi-asset remains a hot topic, with passive strategies finding themselves the recipient of a lot of money.

Bestsellers list

According to Citywire research, Vanguard’s LifeStrategy 60% Equity fund is the best-selling multi-asset fund of 2018 so far, with estimated net flows of £1.2 billion for the whole of 2017. It has remained popular in 2018, with year-to-date flows of £916 million and assets under management of £4.6 billion at the end of September this year (see table below).

Three other passive multi-asset funds also appear in the bestsellers list. Vanguard’s LifeStrategy 40% Equity and 80% Equity funds achieved total net flows of £900 million and £561 million in 2017 respectively. For the year to September, both funds have achieved net estimated flows of £513 million and £450 million.

Meanwhile Legal & General’s Mixed Investment 20%-60% fund also appears on the bestseller list as the sixth most popular, with net flows of £259 million for the year to date alone. For the whole of 2017 and 2018 so far the fund has achieved net flows of £643 million.

Focus on fees

Passive multi-asset represents a way of achieving the diversification clients need at a cost-effective price, as part of a broader approach.

Phil Patient, group chief operating officer at London-based HFMC Wealth, says the funds are popular with ‘fee-conscious’ clients.

‘We use passive multi-asset funds for a segment of our clients, such as Vanguard LifeStrategy. This is typically where the range of funds in a recommended solution is such that it isn’t possible to deliver the asset allocated fund strategy we would usually employ for a given risk profile,’ he says.

‘This would be for a minority of clients though, preferring more active fund management in the current environment in our centralised investment proposition.

‘We are aware some clients are more fee conscious and initially focus on fees over total return. So we also offer portfolios of passive funds in our investment offering, effectively providing a multi-asset solution,’ he says.

Those that advocate an active approach warn adopting passive multi-asset strategies might not be the low-risk route to success some advisers hope, however.

In a 2015 paper, Schroders argued ‘different portfolio returns are the result of both asset allocation and active stock selection decisions,’ adding that ‘passive indices can contain unwelcome biases and hidden concentration risks, while also increasing investors’ exposure to wider systemic risk.’

Whether or not advisers use a passive multi-asset fund may ultimately come down to factors such as whether clients are in accumulation or decumulation, whether they need income, their level of wealth and client service levels.

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