Almost half of defined benefit (DB) schemes are using two or more diversified growth funds (DGFs) in their portfolios to reduce volatility, research has found.
Some 49% of UK DB schemes now use DGFs according to a survey commissioned by Axa Investment Managers (Axa IM), with 36% of those doing so primarily to reduce risk, 23% in order to diversify manager exposure and 18% to introduce new asset classes.
The survey, comprising responses from 150 consultants, DB schemes and defined contribution (DC) schemes, also found 38% of DB scheme respondents were considering adding additional DGFs to their portfolio.
Meanwhile, 67% of larger DC schemes (more than £250m under management) and 25% of smaller schemes (less than £250m under management) held two or more DGFs.
Some 45% of those DC schemes said this was to reduce risk, while 36% said it was to diversify manager exposure.
The survey also asked consultants for their views on DGFs. Around a quarter (24%) believed a desire among investors for new approaches to asset allocation was driving this trend, with a further 24% claiming increased demand was being generated by the need to diversify between managers. Some 19% felt it was due to concerns over manager capacity.
When asked about issues in the DGF sector, consultants, DB and DC investors all pointed to a need for greater transparency and clarity over the funds’ objectives, holdings and fees.
Axa IM head of UK institutional Maddi Forrester said: “It comes as no surprise to us that adding further DGFs to portfolios makes sense to consultants and schemes alike. While each DGF is diversified, blending more than one fund enhances the diversification, reduces the risk of betting on the skill of any single manager and allows access to a wider range of investment approaches.
“Essentially, not placing all your eggs in one basket is a prudent approach. The aim for trustees should perhaps be to identify DGFs that complement each other.”
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