Larger with-profits funds generate greater ROI than their smaller rivals

Published by Scott Eason on

Barnett Waddingham today released its latest annual report on with-profits investment performance and strategy.

The report covers the performance of 66 funds from 30 insurers and analyses the regulatory information provide to the Prudential Regulatory Authority for the years ending 2013, 2014 and 2015.

The report contains information on one-year returns over 2015 and trends in asset allocations over the year.  This blog, however, focuses on the three-year performance figures as we believe this is a better time period over which to judge funds on their performance.

The table below shows the average annual return achieved by funds over the three year period to 31 December 2015, grouped by size of fund.

This clearly shows an average out-performance by larger funds.  Asset allocations were broadly similar across the fund size groupings although the smallest funds tended to have a stronger UK bias in their equity holdings.  Whilst overseas equities have outperformed UK equities over the three year period, this is not the major source of difference in performance.

As can be seen from the chart below, the largest difference is in the performance of the investment managers used by the funds and their stock selection ability.

This continues to back our opinion that not all asset managers are created equally and having the right manager(s) is critical to producing outperformance.  It also suggests that larger funds can achieve greater returns due to their access to bigger, specialist investment teams and having greater investment governance budgets to enable them to have a wider investment universe.

Large firms cannot take their foot off the pedal though.  There is a wide variation of returns being achieved across all of the size ranges.  Investment return is only one component of with-profits performance and we believe that smaller and medium firms can improve relatively simply through reviewing their asset manager approach, improving their internal knowledge and setting appropriate benchmarks.

With Profits Survey

Our third investigation into the investment strategies of UK with-profits funds.

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"We believe that smaller and medium firms can improve relatively simply through reviewing their asset manager approach, improving their internal knowledge and setting appropriate benchmarks."

NEWS

With Profits Survey 2015 results revealed

BLOG

Not all fund managers are created equally

BRIEFING

A new dawn for with-profits business