UK pension schemes and trustees are set to increase the use of diversified growth products as a means of de-risking, a survey by AXA Investment Managers has found.
The survey received responses from 150 consultants, defined benefit schemes and defined contribution schemes about their views on diversified growth funds (DGFs), which typically invest in a range of asset classes and aim to achieve capital growth whilst controlling risk.
Maddi Forrester, AXA IM's head of UK institutional, said: 'Demand for diversified growth products is by no means winding down, in fact, arguably DGFs are even more relevant in the "growth" stage of retirement planning.
'De-risking is the primary objective for the majority of UK schemes and trustees and pension managers are always looking for new methods of diversifying between asset classes with a value for money product, which we believe the "next generation" DGFs offer.'
The survey of DB schemes showed that almost half (49%) used two or more DGFs, with 36% stating that they opted for multiple funds in order to reduce risk, 23% to diversify manager exposure and 18% to introduce new asset classes.
For DC schemes, 67% of the larger ones (those worth over £250m, in assets), held two or more DFGs compared to 25% of the smaller schemes (those worth less than £250m).
Thirty-eight per cent of respondents from DB schemes said they consider adding a new DGF to their existing portfolio, while 60% of respondents from DC schemes said they would consider adding a new fund.
The survey on consultants showed 68% would recommend that DB schemes consider using more than one DGF, while 38% propose that DC schemes use more than one type of fund.
Almost a quarter said that a desire for new approaches to asset allocation is driving this trend of increased demand for DGFs, with a further 24% noting that increased demand was generated by the need to diversify between managers and 19% said it was because of a concern about manager capacity.
Forrester added: 'It comes as no surprise to us that adding further DGFs to portfolios makes sense to consultants and schemes alike. While each DGF is diversified, blending more than one fund enhances the diversification, reduces the risk of betting on the skill of any single manager and allows access to a wider range of investment approaches.
'Essentially, not placing all your eggs in one basket is a prudent approach. The aim for trustees should perhaps be to identify DGFs that complement each other.'
Elsewhere in the survey, when all three respondents were asked about issues in the DGF sector they pointed to a need for greater transparency and clarity over the funds' objectives, holding and fees.
