Fitch expects multi-asset fund managers’ ability to navigate market inflection points to be tested in 2015, with changing central bank policies and sentiment potentially resulting in more volatile and correlated asset class returns. Furthermore, the ability to find returns in the form of higher income while achieving efficient diversification will also be differentiating features of the highest rated funds.

On average, flexible funds continued to underperform traditional balanced funds and benchmarks and failed to deliver asymmetric returns. The fixed-income rally, equity-sector rotation and divergence of risk premia in 2H14 caught many funds with discretionary asset allocations by surprise.

Only the top 5% best performers beat a composite global multi-asset benchmark and, in many cases, by being overweight or increasing early enough exposure to the U.S. and duration.

Despite a poor 2014 average performance, flows to multi-asset funds remained strong, confirming investors’ appetite for asset allocation products, with a particular interest for dynamic, outcome-oriented strategies.