DWA unveils master trust performance comparisons

But over recent years the key reason for outperformance in any master trust has been how much equity risk they have been carrying, with a bonus for if that equity was weighted towards the US.

Dean Wetton Advisory has been monitoring the master trust universe for a number of years. One measure we consider is how much value has been added by each master trust for an average member over the five year period. The chart below shows how much more money the weighted average member has accumulated over the five years to the end of December 2024 than what was contributed.

Source: DWA Note: We have assumed each member pays in £11,000 per year over the five year period (roughly equivalent to £27,500 salary and 8% contributions). Performance is based on a weighted average based on the asset weights of a sample mastertrust (Options) which we expect to be representative. The initial pot size is presumed to be £0. DWA's Benchmark invests in 70% Global Equity and 30% Cash up to 20 years from retirement, and then gradually transitions to 30% Global Equity, 70% Cash at Retirement age. DWA have assumed a fee of 0.5% for the DWA Benchmark.

The top performers are characterised by a high (at or close to 100%) equity/equity like content far from retirement and late or minimal derisking. Indeed, a strategy invested entirely in FTSE All World for all members would have returned £3,952 (again, assuming a 0.5% fee). Even in 2022, ostensibly one of the worst financial years on record, equity was able to recover and keep growing. Those that struggled with bond markets, and particular gilts, during 2022 have generally been slower to recover and have remained weaker.

We also turned the value added into an adjusted annualised return figure. We have adjusted these returns by multiplying them by a relative cost factor to try and capture the effect of differing admin fees within each scheme. We may have double counted some investment fees where we were not sure whether returns supplied were gross or net of fees, however we do not believe this has significantly distorted the picture.

Source: DWA

We see a similar shape suggesting for the most part that those that have performed well have done so fairly consistently over the last five years. This once again marks that recent equity performance has been generally strong and therefore taking equity risk paid off. As before, if a scheme invested entirely in FTSE AW for all ages it would have had a returns component of 12.1%.

It is notable that many of those in the top half of performers have already made commitments to private markets, or else are planning to do so. This may be a reflection of a higher tolerance for risk in the growth phase which has thus far been rewarded, though there is no guarantee this will continue.

For a young pension saver, long term returns are the only thing that really matters to them. Temporary falls in value mean very little when a member can't access their funds for decades to come. Perhaps high risk high reward will remain the best strategy.

Pete Osthwaite is an adviser at Dean Wetton Advisory

Default funds analysed