A future for DGFs
Although diversified growth funds (DGFs) have had some bad press over the past 18 months, the feeling at a recent roundtable on multi-asset investing was that there is still a role for these strategies in diversified multi-asset portfolios.
For example, DB schemes that are in the process of partially de-risking might use them for the very purpose of de-risking. Also, schemes within the Local Government Pension Scheme might use DGFs to obtain lower volatility.
DGFs might also fit well into smaller pension scheme portfolios that are looking for a ‘one-stop shop’, while the roundtable (hosted by colleagues of the Lens at Funds Europe magazine) also heard that DGF has huge potential for innovation and growth in the DC pensions space.
However, one of the challenges for DGF is that their returns are often compared to equities. Across the roundtable panel, it was felt that this was not an appropriate measure.
It is comparing their returns with equities that has caused some of the bad press. Yet it must also be said that if a fund is marketed as having ‘equity-like returns for less risk’, then the notion that equity comparisons are not fair could be contested.
The bottom line is that investors still have some favour for DGFs, but it is key that the end investor understands clearly what the goal is of a DGF strategy.
Other topics aired at the discussion included ESG, which was said should have a bigger role in asset allocation decisions within multi-asset funds. It was said that fund managers may be increasingly asked to demonstrate the impact that such strategies have.
One investor at the panel also said there were huge opportunities for multi-asset funds outside of the UK pension scheme market, for example in the US.
For now, at least, DGF still has a future, but as an industry we must be more clear about where they fit in and exactly what we expect DGF funds to do.