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Diversified growth funds see fivefold growth

28 May 2015

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Assets in Diversified Growth Funds (DGFs) have grown almost fivefold in five years, according to figures from investment consultant Punter Southall.

The company's figures show that assets in DGFs have grown from GBP25bn in 2010 to GBP117bn today and, according to the firm, will rise to GBP200bn over the next three years.

DGFs surge in popularity is largely due to their significantly reduced level of risk.

The research found over a three-year period, DGFs achieved monthly returns of between -3 and 4 per cent, compared to the FTSE All Share, which achieved monthly returns of between -7 and 7 per cent.

The reduced level of volatility and drawdown risk makes this asset class attractive to institutional investors.

Adding to its appeal is the launch of six new products during the first quarter of this year, in addition to the 26 products with a three-year track record and 17 products with five years.

Over the last quarter, DGF assets have grown by GBP6.5bn, with Charles Stanley having the largest percentage increase (125%) in assets over the quarter of GBP305m.

The data shows that Blackrock has replaced Barings as the fourth largest manager of DGF sterling products behind Standard Life Ruffer and Newton. Barings has seen significant asset outflows following the departure of key portfolio managers during the second half of 2014.

"Given the success of Diversified Growth Funds, it is no surprise that most of the big investment houses have an offering to try and get a slice of the AUM, although the majority of the funds are controlled by a very small number of players, with Standard Life, Ruffer and Newton holding 60% of the market," said Punter Southall managing director, Steve Butler.

"We are very positive on DGFs and the outcome based innovation that can bring so many benefits to investors, however, without a benchmark to 'herd' around we need to be aware of the risks that can come with this asset class too."

First published 28.05.2015

Lindsay.sharman@wilmingtonplc.com