UK insurers have been told to review the management of with-profit funds after research from Barnett Waddingham found significant variations in returns.
The findings show that the performance of managers within asset classes is the greatest source of variation, with larger funds tending to outperform their smaller counterparts.
These larger funds have largely benefited from stock selection over the last five years, with equity being the strongest-performing asset class, followed by property.
However, more than one in five 'small' funds outperformed the average 'large' or 'extra-large' fund, reflecting the finding that management has a bigger impact on returns than size.
"We would like to see the weaker-performing funds review their asset allocations and manager selections to close the gap," Barnett Waddingham partner, Scott Eason, said.
"This will enable all with-profits policyholders to benefit from strong, smoothed returns."
The research is based on data for 52 with-profits funds from 20 insurers, covering over £100bn of assets.
Despite variations, the findings show that these funds have achieved average returns in excess of inflation and interest rates, delivering a 6.22% rate over a one-year period, and 6.85% over five years.
Just one of the funds did not achieve a positive overall return over the last year, and all of those analysed achieved a positive return over a five-year horizon.
Rather than taking bets on short-term markets, the research shows that asset allocations in with-profits funds are typically stable or show gentle trends over time - suggesting a long-term outlook.
Equity returns, which typically account for 30% of the fund, ranged from 2.05% to 14.26% per annum over 5 years, and averaged at 11.04%, significantly in excess of the FTSE 100, which returned 10.26%.
"The reputation of with-profits funds has been variable over the years," Eason said.
"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."