Understanding Fund Manager Benchmarks: ARC, IA Sectors, and Beyond
When looking at the performance of discretionary fund managers (DFMs) or multi-asset funds, a natural question arises: ‘Compared to what?’ Benchmarks exist to provide that context, but not all benchmarks are created equal. Some measure how markets have performed, others reflect what peers are actually delivering, and each has strengths and weaknesses.
ARC Private Client Indices (PCI)
Asset Risk Consultants (ARC) have built one of the most widely used benchmarks in UK wealth management. Their Private Client Indices are based on real performance data submitted by DFMs across thousands of live client portfolios.
ARC produces broad risk categories:
Cautious
Balanced
Steady Growth
Equity Risk
Each represents a different level of equity exposure, and the indices show what managers in each risk bucket have delivered in practice.
Strengths: reflects real-world client outcomes, not just theory.
Limitations: not fully transparent (methodology and underlying portfolios aren’t public).
Investment Association (IA) Sector Averages
The UK’s Investment Association (IA) groups retail funds into sectors. For multi-asset portfolios, the most relevant are:
IA Mixed Investment 20–60% Shares
IA Mixed Investment 40–85% Shares
These averages are often used as off-the-shelf benchmarks for balanced or growth funds.
Strengths: easy to understand, widely quoted.
Limitations: averages can be dragged down by poor funds; no guarantee that the mix matches a client’s needs.
Morningstar Categories
Morningstar classifies funds globally, with categories such as Moderate Allocation or Aggressive Allocation. Like IA sectors, these are peer group averages, but applied more consistently across regions.
Strengths: useful for international comparisons.
Limitations: broad bands can still hide big differences in strategy.
Custom Strategic Benchmarks
Many managers prefer to measure themselves against a transparent, replicable mix of indices. A classic example is the 60/40 portfolio:
60% equities (e.g. MSCI ACWI)
40% bonds (e.g. Bloomberg Global Aggregate)
These can be tailored to match different client risk levels.
Strengths: clear, rules-based, cheap to replicate.
Limitations: doesn’t show what peers are actually doing in practice.
Why Use More Than One Benchmark?
For advisers and investors, both perspectives are valuable:
Market benchmarks (MSCI, Bloomberg) show what a cheap passive mix would have delivered.
Peer benchmarks (ARC, IA sectors) show how managers have fared relative to each other.
The combination helps answer two questions:
Could I have done better with a simple low-cost index portfolio?
Is my manager delivering at least as well as their peers?
Final Thoughts
No single benchmark tells the whole story. Market indices set the bar for efficiency and cost, whilst peer-group benchmarks reveal what DFMs are actually achieving. Together, they provide the context investors need to judge whether a fund manager is adding real value.