With-Profits funds not dead: investment performance stays strong

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With-profits funds offered by UK insurers have had a poor reputation since the near-collapse of Equitable Life, with many depicted as “zombie” funds producing poor investment returns. But, this just isn’t the case for the majority of funds.

Our latest research demonstrates that a large number of the funds are achieving strong returns for long-term savers. We examined over 50 funds with assets under management in excess of £100bn. The average return over 2017 was 6.22%; comfortably in excess of inflation and cash interest rates.  Average equity holdings in the funds remained fairly stable at just under 30%, with the balance predominantly in bonds.

Over the 5 years to 31 December 2017, the average investment return achieved was even higher at 6.85% per annum. This included an average equity performance of 11.04% after fees compared with the 10.26% achieved by the FTSE All-share index over the same period.

However, there are still significant variations in investment performance and we would like to see the weaker performing funds review their asset allocations and manager selections to close the gap. This will enable all with-profits policyholders to benefit from strong, smoothed returns.