Shop staff's passive DGF default leads field in 2012

Employees at Sainsbury’s and the Home Retail Group, which owns Argos and Homebase, saw returns of 11.1 per cent from the fund’s launch on January 10 until the end of the year.

The FTSE Global All Cap Index returned 12 per cent for 2012, while the two largest diversified growth funds returned 7.7 per cent (Standard Life Investments GARS fund) and 4.4 per cent (Newton Real Return Fund).

Both sets of employees have invested in Legal & General Investment Management’s Multi-Asset Fund, which adopts low cost passive investment across 40 per cent equities, 40 per cent bonds and 20 per cent alternatives.

“Many more active competitor funds were too conservatively and cautiously positioned over 2012, and most managers had not foreseen that the market could perform well even if there was only moderately good news on the economic front,” said Marcus Mollan, head of solutions research at LGIM.

For each scheme the fund was launched for existing members in January 2012, and is also the auto-enrolment choice.

Sainsbury’s had 20,000 employees investing in its DC scheme and would have offered it up to 100,000 others in October, according to scheme documents.

The Home Retail Group had 3,000 employees saving into pensions, but will be auto-enrolling a further 12,000 this month. Both schemes declined to comment on their investments.

The default fund is being offered at a discount to both employers as part of Legal & General’s mastertrust.

Employees at the Home Retail Group will pay only 0.33 per cent for administration and fund management, whereas the flat rate for schemes that access the multi-asset fund as a standalone product is 0.35 per cent.

Nico Aspinall, senior investment consultant at Towers Watson, questioned how such low-cost approaches would perform over time.

“Pension savings are a long-term product and DGFs will need to weather many different market conditions.

“Lower-cost approaches may not change their asset allocations much over time, and look less good in future as a result.”