51 of the 52 funds surveyed achieved a positive overall return over the last year, and every one of the 40 funds Barnett Waddingham has data for achieved a positive return over a five-year horizon. Over a one-year and five-year period, the average fund performance was 6.22% and 6.85% respectively.
Average asset allocations are either stable or show gentle trends over time. Rather than taking bets on short-term market movements this suggests a preference for asset allocations, across all sizes of funds, being determined by a long-term outlook.
Performance of managers within asset classes was the largest source of the variation between funds, with the larger funds generally benefiting from significant outperformance from stock selection. Equity returns, which typically account for 30% of the fund, ranged between form 2.05% to 14.26% per annum over 5 years, with the average fund returning 11.04%, significantly in excess of the FTSE 100, which returned 10.26% over the same period.
Scott Eason, Partner and Head of Insurance Consultancy at Barnett Waddingham, said: “The reputation of with-profits funds has been variable over the years. However, our research clearly shows that solid investment performance has been achieved and insurance companies are standing up to scrutiny to provide policyholders with good investment returns.
“However, there are still significant variations in investment performance and we would like to see the weaker performing funds review their asset allocations and manager selections to close the gap. This will enable all with-profits policyholders to benefit from strong, smoothed returns.”
Further findings from the report
• Variations existed at all sizes of fund and larger funds tended to outperform their smaller counterparts
• Equities were the strongest performing asset class, followed by property
• The best-performing fund is a ‘small’ one, and over 20% of ‘small’ funds outperformed the average ‘extra-large’ or ‘large’ funds, however
• The total range of 1 year investment returns is smaller than last year
• There is a growing appetite for equity over gilts among the largest of funds
• Property performance was very volatile and average performance lagged the UK property index
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