Fiduciary managers outperforming low governance options

Fiduciary managers mostly outperformed the relative return of low governance options between 2018 and 2020, according to Isio, but the 12 managers it analysed failed to achieve client return objectives of 2.5 per cent annual return.

A report from Isio, which utilised the CFA Institute’s Global Investment Performance Standards (GIPS) data to analyse 12 fiduciary managers over 90 per cent of UK fiduciary management assets under management, noted that all but one of the managers had managed to offer positive returns despite market volatility in the period.

Additionally, only two fiduciary managers fell short of the returns offered by a low governance alternative option.

Just one fiduciary manager underperformed the low governance portfolio on a risk adjusted basis over the past three years, which Isio said demonstrated that most fiduciary managers had performed better than a simple solution after allowing for all fees and expenses.

The analysis found that equities had been the single biggest driver of returns over the last five years, although real assets stood out as the best performing asset class during 2018 due to a market sell off, which Isio said demonstrated the importance of diversifiers within portfolios.

At the other end of the spectrum, hedge funds were found to have been common detractors for fiduciary managers across the period, followed by public credit and alternatives.

The risk of rising interest rates and further uncertainty in relation to the pandemic and vaccine roll-out have been identified as the biggest challenges for 2021.

Around 60 per cent of the managers surveyed believed equities will be a key area of positive performance across the short, medium and long term, and Isio also noted that fiduciary managers were also expecting a renewed focus on sustainable and responsible investing as economies emerge from the pandemic.

Isio partner and head of fiduciary management, Paula Champion, commented: “The intervention of the Competition and Markets Authority has really changed the fiduciary management landscape, providing a long-awaited injection of competition into the market. Those put in charge of managing billions of assets need to be accountable for their actions.

“The presence of GIPS data is a fundamental improvement in performance transparency and comparability, but the process of being able to take the data and use it effectively is still in its infancy. Our report aims to guide trustees and pension scheme stakeholders through the key questions they should be asking.

“Finding answers to these questions and considering this type of analysis will not only help them to select the best fiduciary manager for their needs, but ensure they continue to perform well and add value on an ongoing basis.”

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