What You Need to Consider when Evaluating Objective-Based Funds

Objective-based asset allocation (OBAA) funds were born in the ashes of the GFC and target an absolute return.  Their appeal is that they offer investors a one-stop solution and better potential management of downside risks through dynamic asset allocation and risk protection overlays.  However, our analysis shows most have under-performed conventional balanced funds since inception, and they have not, in general, meaningfully used the asset allocation ranges permitted by their investment policies.  They are also yet to be truly tested in a bearish market environment.  Our findings show that the actual investments made differ markedly between OBAA funds.  This highlights that the need for comprehensive due diligence by Advisers, Trustees and other fiduciaries is just as material for OBAA funds as conventional funds.  Finally we argue that the ongoing monitoring requirement is even higher with OBAA funds because the asset allocation and fund selection decisions they make still remain the responsibility of the fiduciary – they cannot be delegated away.
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