Master trust members should be prepared for “higher levels of volatility” as funds continue to push higher overseas equity allocations in their growth phases, a report from LCP has warned.

The firm’s latest research into master trust investment performance showed that equity markets experienced high levels of volatility in early 2025, following a year of strong returns.

It found that some of the leading master trusts have allocated 100 per cent of their growth phase to global equities, which has seen the most volatility in recent weeks.

The report suggested that the allocation to North American equities in these strategies was significant, but it varied between the trusts, ranging from 63 to 73 per cent.

While most providers had included or considered including private markets in the growth phase of their default strategies, potentially offsetting some of the increase in volatility, the size, costs and underlying assets vary significantly.

This marks a shift from 2024 when master trusts were rewarded for heavily relying on overseas equities, particularly US tech.

This year, strategies built on a concentrated global equity approach have been hit hardest, while those with broader diversification are holding up comparatively well.

LCP report author and defined contribution (DC) partner, Nigel Dunn, said it was important for savers to look “under the bonnet” of master trusts to avoid selecting one with a poor investment strategy.

“In 2025, equity returns have become much more volatile and will likely remain so over the next year. Increased incentives to allocate to private markets and invest in UK productive finance have and are likely to continue to influence strategic allocations in the future,” he added.

The report also suggested that master trust investment strategies were undergoing a “significant amount of evolution.”

It said providers were “overhauling” existing strategies and introducing a new premium strategy to improve member outcomes.

Typically, the evolution has centred around three key themes: higher equity allocations in the growth phase, new private market exposure (both near and far from retirement), and shorter glidepaths to retirement for some.

LCP said master trust glidepaths varied; some provided a bumpy run for members, while others had a much smoother approach.

The firm claimed that returns in the final years of glide paths had been better protected from recent market volatility, but there was still some variation between trusts.

Meanwhile, the report revealed that all master trusts integrated responsible investment into their default strategies.

At the end of 2024, 95 per cent had climate-integrated equity in their default.

Beyond equities, many providers were exploring climate integration in fixed income, and some were going a step further with their private markets allocations focusing on climate-driven sectors, such as renewables, the report added.

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