Multi-asset proves popular in DC

The use of multi-asset and target date funds by defined contribution (DC) schemes is rising at the expense of passive tracker funds, research has found.

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The use of multi-asset and target date funds by defined contribution (DC) schemes is rising at the expense of passive tracker funds, research has found.

The use of multi-asset and target date funds by defined contribution (DC) schemes is rising at the expense of passive tracker funds, research has found.

The research by DCisions, the consumer investment insight firm, revealed that as at December 2011 32% of schemes surveyed directly employ either target date funds or multi-asset strategies (14% multi-asset; 18% target date funds), compared with just 12% in December 2006 (9% multi-asset; 3% target date funds).

However, the use of passive trackers dropped over the same period from 63% in December 2006 to 48% in December 2011.

The research, featuring some 13,000 DC schemes with assets of more than £15bn, found there was a mismatch between scheme use and asset manager confidence in these solutions. While 32% of schemes surveyed directly employ multi-asset solutions, 71% of asset managers said they recommend them. The study also highlighted a disconnect between where asset managers and schemes consider responsibility lies for DC asset allocation. It revealed 50% of asset managers believe they determine the asset allocation, 20% believe it is the responsibility of the consultant and 20% the platform provider. Only 10% of asset managers said it was down to the sponsor/trustee.

However, when the same question was put to schemes, 71% said asset allocation was the responsibility of the trustee/sponsor and only 10% believe it is the responsibility of the asset manager. And yet, nearly 60% use white-labelled solutions, indicating the possible strong influence of the consultant in the process.

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.”

Elsewhere, the report found 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 disconnect between the lifestyling mechanism and decumulation objective. The research also found an increase in the allocation to bonds and cash by consumers at the expense of equities. UK equity allocations declined from 42% in 2010 to 41% in 2011 and international equities dropped from 39% to 35% over the same period. Bond allocations increased from 9% to 12% and cash from 7% to 9% over the same period. Property remained stable at 3%.

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