F&C launches Diversified Growth Fund

F&C is addressing the lack of portfolio diversification across pension schemes by launching the F&C Diversified Growth Fund, an efficient and unique alternative to the 'balanced' pooled platforms currently available in the UK market place.

The F&C Diversified Growth Fund invests across a wide universe of asset classes, with significant (50%) exposure to alternative assets. The fund predominantly uses passive instruments for exposure to each market, aiming to supplement returns through asset allocation decisions.

The composition of UK Defined Contribution (DC) schemes has changed relatively little in recent years, despite the fact that the available investment universe has been continuously expanding. In addition to this, the portfolios of UK DC schemes remains highly concentrated in terms of exposure to a small number of asset classes. The new Fund aims to address these issues through improved portfolio construction and providing access across multiple asset classes. Crucially, the focus on accessing markets efficiently enables a low cost structure to be maintained while minimising risks of performance leakage.

"In our view there is a clear lack of pooled, diversified, multi-asset portfolios in the market place and most pension funds are far from being 'balanced'," said Paul Niven, Head of Asset Allocation at F&C. "If one considers the basics in terms of investment, diversification is the most important principle that a pension fund should follow and what we have created is a product which has a diversified mix of assets and delivers performance in an efficient manner."

The F&C Diversified Growth Fund will invest in a wide range of return seeking assets, aiming to take advantage of their relatively low correlations to generate returns commensurate with equity markets over a 5 year cycle but with lower levels of volatility. The managers will aim to supplement the returns generated by their strategic benchmark by 100bps per annum through operating a global tactical asset allocation (GTAA) overlay, which will give them the ability to tactically deviate from strategic benchmark positions.

At inception, the Fund will have exposure to 12 different asset classes with no single asset (at neutral weighting) accounting for more than 10% of the total portfolio. One of the key features of the Fund will be the significant exposure to alternatives with asset classes such as commodities, fund of hedge funds, property and private equity accounting for 50% of total assets.

Toby Vaughan, fund manager in the F&C Asset Allocation Team, said: "All pension schemes can benefit from an efficient combination of return seeking assets and our new vehicle offers an improved risk return trade-off to traditional balanced portfolio."

Another key feature of the fund is the deviation away from market capitalisation-based weightings within equities, or the bias towards domestic markets present in traditional pooled pension funds and the hedging of overseas exposure back to the investors base currency.

"The composition of the strategic benchmark provides a genuinely balanced portfolio where the expected returns are significantly less reliant upon individual asset class performance. This is not the case for most of the multi-asset class portfolios currently available," Vaughan added.

The Fund invests predominantly in passive instruments through selecting the most efficient vehicle on the market for each asset class.