Active managers in the 60/40 space are still overwhelmingly failing to beat an index that simply tracks the market, research house Fundhouse has found.
Looking at over 160 multi-asset funds, Fundhouse analysts compared their performance to two benchmarks, one with a UK home bias and one without.
Multi-asset portfolios are commonly used by long-term investors, which traditionally combine a ratio of 60 per cent for higher risk investments like stocks and 40 per cent for lower risk investments like bonds.
Fundhouse said they had pursued the analysis due to claims that the 60/40 strategy was ‘dead’, a common refrain due to the issues such as the increasingly correlation between stocks and bonds, making them less able to balance out the other’s poor performance in times of crisis.
This would hopefully leave more room for a fund manager actively picking stocks and shaping their own portfolios to skilfully overcome the challenges the traditional 60/40 portfolio has been experiencing.
However, this was not the case.
Over the last ten years, less than 15 per cent of the funds analysed outperformed the global benchmark, while less than 20 per cent outperformed the benchmark with the UK home bias.
“In over 80 per cent of cases, it would have been better to have done nothing, rather than something,” said the analysts.
When examining monthly rolling returns over the period, results were similarly poor, with only 20 per cent of multi-asset funds managing to outperform the index with a UK bias at least half the time.
The numbers were even worse when dropping the UK bias, with only 10 per cent outperforming an index at least half the time.
The funds were all from the IA Mixed Investment 40-85 per cent Shares sector, leaving them room to mess with their proportions to fit their investment style.
“We investigated various other sectors and found the results to be similar,” Fundhouse said.
“It wasn’t so long ago that the industry was writing the obituary of the 60/40 fund – the very blend that has continued to outperform them, on average,” the analysts added. “There will always be reasons why markets are anomalous.”
Why is this the case? Fundhouse presented two possible reasons: First, that managers often act too cautious or too excited when an opportunity presents itself, leading to over-correction.
Secondly, “asset allocation in most multi-asset strategies is heavily influenced by macro insights and forecasts. Our research suggests that the odds of getting these forecasts consistently right are very low.”
