Spotlight on risk targeted fund families and funds

Nancy Mills, Research Manager for Funds and DFMs

We’ve witnessed an increasing appetite for risk targeted funds from advisers and their clients partly due to the impact of the RDR and also the volatility in the markets, particularly in 2008/2009.

As a result, the need to be able to compare risk targeted fund families and fund propositions with one another has increased significantly. We've therefore defined a whole new market segment: the risk targeted fund family universe. This is to help you better understand and analyse this growing and important area.

Grouping risk targeted funds into their own segment allows you (and your clients) to more easily change funds, if needed, within the same family of funds as appropriate to increase or decrease the client's exposure to volatility.

Here are a few up-to-date figures derived from our research and analysis.

Market segmentation

There are currently 30 providers in the market offering 38 fund families. Within these fund families there are a total of 181 funds with total investments of around £23 billion.

All 181 funds are actively managed from an asset allocation point of view. Ten families have adopted the approach of predominantly using passive assets in their investment strategy.

Within this universe, all funds are multi-manager funds, with over 90% choosing the unfettered fund of funds method. Only one fund family uses a hybrid multi-manager method, combining both fund of funds and manager of managers. Interestingly, all but one family use the same multi-manager method across all funds within their family.

New arrivals

During 2013, 23 new funds and a total of four new fund families were launched in this space. That’s an increase of almost 15% in just one year. There's almost £1 billion already invested in these new funds alone.

These new funds carry an average ongoing charge between them of just 1.07%. Interestingly, this is lower than the average across the whole risk targeted universe, which is 1.47%. This could suggest that there is an overall downward trend in costs, with some new funds having an ongoing charge of as low as 0.50%. 

The growth in risk targeted fund families (those with a minimum of three risk targeted funds in them) and funds over the past seven years.

Get the full picture

We have identified those funds for you that use a risk targeted approach and rated the families in which these funds sit. You can see these Diamond Ratings and the associated funds in our adviser software Defaqto Engage.