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Multi-asset growth investing – the next generation

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December 5, 2019

Diversified growth funds are not performing as expected, we ask what should investors look for in multi-asset investing.

In our 2016 paper Diversified Growth Fund investing: Is there a better way, we highlighted that the Diversified Growth Fund (DGF) market was becoming saturated and wasn’t delivering versus expectations. We urged investors to investigate a better way. At a time of high popularity for DGFs, our paper and its suggestions attracted mixed reviews.

Fast forward to 2019 and the conclusions from our 2016 paper remain valid, indeed the results of the updated analysis look worse. While some clear exceptions exist in this market, the average DGF is trailing performance expectations and failing to add value. Also, in the vast majority of DGF portfolios we continue to observe low levels of portfolio breadth and thus limited scope to outperform a 60:40 equity:bond portfolio going forward. And while Willis Towers Watson is now far from alone in outlining the challenges facing DGFs, we believe the case for change is stronger.

While there are some clear advantages to DGFs and they remain a key building block in portfolio construction for certain types of asset owners, we believe the majority of investors should review their perspective on multi-asset investing.

In the figure below we have updated the results of our 2016 analysis. This shows that the average DGF has not managed to outperform a simple 60:40 equity:bond portfolio over almost a 10 year period, even on a gross-of-fees basis.

Deconstructing the mean gross DGF return streams
Deconstructing the mean gross DGF return streams

Source: DGF Manager Universe Analysis
Past performance is not a reliable indicator of future performance

In this article, Katie Sims, Head of Multi-Asset Growth Solutions explore the challenges DGFs have faced and what investors should look for in a multi-asset solution.

The delivery of attractive risk-adjusted returns through genuine diversity including a broad opportunity set, specialist skill and high quality security selection.”

Katie Sims | Head of Multi-Asset Growth Solutions
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