The advice and brokerage firm has hit out at what it sees as a lack of innovation in the sector with an explosion of me-too products.
Its research paper Diversified Growth Fund Investing: Is There a Better Way? suggests a number of alternatives to the traditional DGF model.
In particular, it wants to see a focus on strategic asset allocation with index-tracking implementation; high-quality alternative smart betas which can provide “extra diversity” in the return drivers at a low cost; and “genuinely differentiated and diverse” manager skill across the spectrum of alternative asset classes.
“Diversified Growth Funds have grown from an improved one-stop-shop solution over traditional balanced portfolios to what is now a huge market where many asset managers are just capitalising on the popularity of this strategy by growing assets under management and launching more similar products,” said senior investment consultant Sara Rejal.
“While these products have had good returns since 2008, benefitting from strong market performance across most asset classes, many asset managers have reaped the benefits and not innovated at a sufficient scale.
“Our analysis of the key drivers behind DGF performance shows that in general, the high returns are attributed mostly to beta rather than alpha. Further, and crucially, we question how effective traditional, liquid DGFs will be going forward if market returns are subdued.”
With roots in traditional balanced equity/bond funds, demand for diversified growth funds has surged in recent years – according to a Henderson Global Investors Report 2015, multi-asset funds in the UK have seen assets under management grow six-fold over the past 10 years.
Leading players in the DGF field include Standard Life GARS and Newton Real Return, as well as funds from the likes of Aberdeen, Franklin Templeton, Investec and M&G.
