The majority of UK fund managers’ returns over 2021 were driven by strong performance in equity markets with more complex sub-strategies often doing little to add to returns, according to research by consultancy XPS Pensions Group.

XPS’s review exampled real-world performance data from 18 growth portfolios across 14 fiduciary managers. The research found that while equities comprised less than 50% of portfolios for most managers, the asset class was by far the biggest contributor to managers’ returns across the year.

More complex allocations, meanwhile, such as hedge fund strategies, did very little to drive returns in most cases, said XPS, albeit acknowledging that such allocations may have reduced portfolio volatility.

“Some fiduciary managers are not always adding significant value in their portfolios through dynamism or complexity,” said André Kerr, partner and co-head of fiduciary management oversight at XPS.

“Instead, portfolios are often heavily reliant on market returns. It is important that trustees are in a position to challenge their fiduciary managers on what is driving performance and why.”

XPS also found that 70% of fiduciary managers outperformed the returns of the median average Diversified Growth Fund, whereas 30% underperformed. There was a large gulf between the best- and worst-performing fiduciary managers, with an 8% gap between the highest- and lowest-returning growth portfolios.

What difference a fiduciary manager?

Separately, Barnett Waddingham said its review of fiduciary manager investment performance for UK pension funds showed that, a risk-adjusted basis, few managers produced meaningfully better returns than could have been achieved using a relatively simple portfolio outside of fiduciary management.

Barnett Waddingham’s research evaluated performance, using GIPS, across £95bn of pension fund assets relative to changes in liabilities. Most fiduciary managers achieved their outperformance objectives over 2021.

However, few managers have been able to consistently outperform their peers over the past three years, Barnett Waddingham said.

XPS’s and Barnett Waddingham’s reports can be found here and here, respectively.

Read the digital edition of IPE’s latest magazine