Diversified assets reduce volatility by a third

The reduction in volatility came from adding diversified growth funds to new members’ investment portfolios, in place of 50% of their equity holdings.

The strategy is based on research from Standard Life Investments (SLI), in which the 100% equity default funds of more than 200 of its clients had their plans modified in this way, with the addition of the Global Absolute Return Strategy (GARS).

Louise Kay, SLI’s head of institutional business and strategic consultants, said: “This strategy allows pension schemes to reduce volatility, which prevents members getting scared when they see their investments drop so low.

"And unlike the gilt-heavy National Employment Savings Trust default fund, these strategies still give members a level of return.”

And Euan Munro, head of multi-asset investing at SLI, said remaining robust throughout a range of different circumstances is what multi-asset investing is all about.

“It was important to get a non-Middle East oil play in to the portfolio, for example. But if you think your return is not going to come from capital gains, it’s best to look for stable, solid income sources,” he told PW in an interview.