Benchmarks are still a tough hurdle for most multi-asset funds to climb, with just one set of funds, the GBP 0-20% equity set, delivering an excess return versus their benchmark over one, three, five and 10 years, according to Morningstar research.
There were some bright spots for more cautious funds, with EUR Cautious Allocation and US Cautious Allocation outperforming their benchmarks over one- and five-year periods.
Meanwhile, the average aggressive multi-asset funds trailed their benchmarks, with the worst of the batch being the USD Aggressive Allocation funds, which underperformed by 5.9% in 2025.
However, while cautious allocation funds performed better, they largely failed to capture investor attention. In Europe, cautious strategies have lost market share since 2016, and investors pulled £5bn from this category last year alone, according to Morningstar data.
The picture does not improve when looking at European funds, where cautious funds were the only group to lose money last year.
‘A continued fall in home bias’
Shifting to portfolio positioning, a comparatively poor year for US equities has not detracted from the amount flowing into the asset class over the past decade.
US equities still represent around 20% or higher allocations in moderate European and UK currency funds.
Tom Mills, principal of multi-asset strategies at Morningstar, said: “We’re seeing managers steadily increase US equity exposure, and in the UK, a continued fall in home bias in the average portfolio.”
Equities remained generally popular in most flexible funds, ending the year with equity allocations above 40%, even after most multi-asset funds reduced their allocations in early 2025 as ‘liberation day’ tariffs hit.
Meanwhile, while gold went on a tear last year, with the FTSE Gold Mines index surging 154%, supported by central banks and geopolitical uncertainty, not everyone owned it.
In the top 10 largest multi-asset funds in Europe, four owned none of the precious metals at all. These were generally income funds, such as Allianz Income and Growth, which tend to exclude the asset class for generating no yield.
Three more (Kontrolliert, Universal Invest Dynamic and Hermes Universal Dynamic) held the yellow metal but in a small allocation of less than 1%. This means just three of the top 10 largest multi-asset funds held the metal during their best calendar year performance in over a decade.
One of the other major trends, he noted, was cost. “Investors are voting with their feet: low-cost multi-asset funds are dominating flows while expensive products fall further out of favour.”
This is particularly the case in the UK, where almost 40% of all assets are in the cheapest quintile of funds, according to Morningstar data. By contrast, less than 10% are in the most expensive strategies.
These funds have also been attracting more money over one, three, five and 10 years, while less expensive options have experienced outflows.
“Our research shows that fees are a crucial factor for investor flows and long-term success, with the cheapest products consistently winning market share and outperforming costlier peers,” Mills said.
However, flows in Europe have been more spread out. The cheapest quintile of funds still represented more than 20% of assets under management in multi-asset strategies, but more expensive options in the third quintile tended to beat them out.
This article first appeared in our sister publication, Portfolio Adviser.
