On the go: Fiduciary managers significantly undershot their targets in 2018, with underperformance ranging from 6 per cent to more than 11 per cent, according to the first XPS FM Watch report.
XPS claims that this underperformance could have resulted in losses ranging from £4m-£8m for a £100m scheme with 70 per cent exposure to growth assets.
FM is increasingly popular with trustees. Around 1,000 schemes use some form of delegated service, representing assets of over £160bn, and the report’s research is based on 90 of the market.
2018 was a torrid time for managers, with financial markets having their worst year since the financial crisis in 2008 and the stock market crash in 2011. In 2018, fiduciary managers were matched by a diversified growth fund combined with a 100 per cent liability-driven investment hedge, although longer-term performance of FMs is much stronger.
Outcomes were widely dispersed, with the difference between best and worst performance equating to 28 per cent over a five year-period. On average though, fiduciaries have delivered much lower volatility than equities (broadly around half).
André Kerr, head of fiduciary oversight at XPS Pensions said: “The performance of fiduciary managers’ growth portfolios has disappointed in 2018. This is what we would expect if market exposures rather than manager skill were driving returns, which is something we prefer to see.”
He added: “Their performance over the longer term has been good, with most achieving their targets and outperforming diversified growth funds. It’s difficult to draw conclusions from just one year’s performance, especially when we’ve experienced such testing markets.”
