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Active beats passive in battle for drawdown supremacy

August 22, 2018

- Analysis by Zurich reveals advisers overwhelmingly favour active over passive funds in new drawdown landscape 

Financial advisers are investing 89% of drawdown assets into active funds, according to leading platform provider Zurich.

Analysis of drawdown investments on Zurich’s platform reveals advisers are overwhelming backing active managers for customers in retirement. 

Just 3% of drawdown assets are held in passive funds, which are struggling to gain any traction in the post-pension freedom landscape.  A further 8% of advised drawdown assets are being held in cash.

Alistair Wilson, Zurich’s Head of Retail Platform Strategy, said:  “Although there’s been a boom in demand for passive strategies from people contributing to their pension pots, they’ve failed to gain almost any ground among those who have hit retirement.    

“When it comes to drawdown, advisers and retirees appear to be looking for investments with greater potential to deliver growth and income, while offering a measure of protection against volatility.  

“The risks and complexity of drawdown call for a more bespoke asset allocation which advisers could struggle to achieve with a straightforward index tracker.  Passive funds do have a role in drawdown but they clearly aren’t seen as a core solution.”

According to Zurich’s analysis, the top three investment sectors for advised customers in drawdown are the Unclassified sector (40%), Cash (10%) and UK Equity Income (6%).  Advisers are also more likely to look overseas to generate returns, with just 21% of drawdown assets invested in UK funds compared to 79% globally.  

Wilson said:  “Multi-assets, which make up the bulk of the Unclassified sector, have become the go-to drawdown investment for advisers.  Large losses early on in retirement can be difficult for someone’s portfolio to recover from.  With their broad asset allocation, multi-assets can offer greater protection against market volatility, as well as the potential to provide an above inflation return.  

“The dominance of multi-assets in drawdown also underlines the ongoing desire among advisers to outsource investment decisions, enabling them to focus more on customers and their needs.  This is trend we’re seeing in our own multi-asset Horizon Fund range, where AUM in the first half was up more than 50% against the same period last year.” 

Commenting on cash making up the second largest holding among those in drawdown on its platform, Wilson added:  “For many people in drawdown, cash provides the income stability they need and a buffer to fall back on if markets take a downturn.”

Zurich analysed totals flows into active and passive funds and cash on its advised platform between May 2017 and June 2018.  Actively managed funds that may have an exposure to passive funds have been classed as active funds.  

-- Ends --

For further information please contact: 
Chris Johnson, Media Relations Manager
07812 265 245, chris.1.johnson@uk.zurich.com