Which multi-asset INDEX fund?

• Comparing balanced risk profile / 60% equity allocation multi-asset funds to our “plain vanilla” 60/40 GBP index enables performance insight and analysis
• Asset allocation design and investment process are key differentiators
• Architas Multi-Asset Passive range has delivered best risk-adjusted performance, whilst HSBC Global Strategy range offers lowest all-in costs

We analysed 5 year performance of major multi-asset index funds relative to the Elston 60/40 GBP Index to end December 2019, and a YTD update through the COVID-19 impact.

We focused on the following multi-asset index funds* for performance analysis:
Architas Multi-Asset Passive Intermediate fund, BlackRock Consensus 60 fund, HSBC Global Strategy Balanced fund, LGIM Multi-Index 5 fund and Vanguard LifeStrategy 60% Equity fund.

Cumulative Returns
Architas and HSBC have the best performing funds in absolute terms within this group:

Source: Elston research, Bloomberg data
Notes: Total returns in GBP terms, daily data, as at 31/12/19

Risk-adjusted returns
Within this group, Architas has delivered best risk-adjusted returns within:

Source: Elston research, Bloomberg data
Notes: Annualised total returns in GBP terms, daily data.  5 year annualised daily volatility data as at 31/12/19

Performance in COVID-19’s “live fire stress-test”
Looking at performance year to date, we see Architas, HSBC and Vanguard delivering performance most consistent with the 60/40 index.  BlackRock Conensus 60 and L&G Multi-Index have delivered least consistent performance relative to this index, underperforming the 60/40 index by -1.81ppt and -2.67ppt respectively.

Obviously those funds’ objectives are specific to each fund and are aiming neither to track nor beat the 60/40 index.  But now we can track the performance of a “no-brainer”** 60/40 portfolio in real-time, it’s easier to see the value that multi-asset index funds add or substract relative to that plain vanilla benchmark.  Multi-asset managers can add value through optimisation, tactical allocation and implementation efficiencies, for example.

Source: Elston research, Bloomberg.  As at 29/5/20 total returns basis, GBP terms.

Costs
Ranked by Total Costs and Charges (“TCC”) which represents OCF plus transaction costs, HSBC offers the lowest cost option.
                                OCF                        TCC
HSBC                     0.18%                    0.22%
BlackRock            0.22%                    0.29%
Vanguard            0.22%                    0.26%
LGIM                     0.31%                    0.31%***
Architas                0.47%                    0.48%
Source: manager data, as at end December 2019. ***estimated figure

Value For Money
Architas may look expensive on a TCC basis.  But it has delivered best risk-adjusted performance in the period under review owing to their more dynamic asset allocation approach, so arguably offers good value for money on a risk-adjusted basis.  For static allocation funds, the main differentiator is cost alone, on which basis HSBC offers best value for money, in our view.

A less inappropriate benchmark
Whilst our 60/40 benchmark by default may not be the "perfect" benchmark for these and other (balanced/medium-risk) multi-asset funds, it is certainly a less inappropriate benchmark than comparing a multi-asset fund to a FTSE 100 or Global Equity benchmark.  Whilst individual fund houses may use composites for comparison, these may not be publicly available for analysis.  The existince of a published standardised 60/40 benchmark enables cross-comparison, analysis and insights.

*Fund tickers: ARINTDA, BRC60DA, HSWIPCA, LGMI5IA, VGLS60A respectively.  Index ticker: 6040GBP Index
**Abraham Okusanya's coinage in https://finalytiq.co.uk/cobras-unintended-consequences-multi-asset-funds/​