Nest outperforms rivals on risk-adjusted basis

Nest, the state-sponsored workplace pension provider, has outperformed all its major contract-based rivals over the last three years on a risk-adjusted basis, delivering market-leading returns while taking considerably less risk than its peers.

Fund Annualised 3-yr performance (%) Annualised 3-yr risk (%) Sharpe ratio
Nest* Growth phase 11.84 7.16 1.61
Nest NDRF 2060 (Foundation phase) 8.95 5.11 1.69
Aegon Default Equity & Bond Lifestyle Pn 11.40 8.75 1.26
Aviva Diversified Assets II Pn S6 10.37 8.25 1.21
Fidelity Diversified Markets Pn 9 N/A N/A N/A
Friends Life – FL My Future Growth Pn 11.56 7.99 1.40
L&G Multi Asset PMC Pn 3 10.36 7.34 1.36
Royal London Governed Portfolio 4 Pn 9.30 7.01 1.27
Scottish Widows Pension Portfolio Two Pension Series 2 10.73 10.24 1.01
Standard Life Stan Life Active Plus III Pn S4 6.51 5.22 1.17
Zurich Passive Multi Asset IV Pn CS1 11.87 9.32 1.23

*Nest figures shown net of 0.3% ongoing charge. Nest’s 1.8% contribution charge is not factored into the calculation as this reflects pension administration. All other providers’ fund data is net of investment charge and does not factor in pension administration charges

The provider achieved annualised performance of 11.84 per cent in the three years to 30 June 2017, just 0.03 per cent behind the strongest performer – Zurich’s Passive Multi Asset IV Pn CS1 – but with considerably lower three-year annualised risk of 7.16 per cent than the 9.32 per cent risk of the Zurich fund. Nest’s performance exceeded that of major defaults from Aegon, Aviva, Friends Life, Legal & General, Royal London, Scottish Widows and Standard Life, while taking less risk to achieve these returns than all of them except Royal London and Standard Life. The

The Nest growth phase funds demonstrated the strongest Sharpe ratio – a commonly used measure of risk-adjusted returns – of any of the nine major defaults ranked in Punter Southall Aspire’s recent analysis of DC funds, which considered the mainstream default of key workplace pension providers. The Punter Southall Aspire research did not include an analysis of performance of standalone master trusts or target date funds principally available to trust-based schemes.

Nest’s Sharpe ratio stood at 1.61, considerably higher than the second best Sharpe ratio in the group, Friends Life’s FL My Future Growth Pn, which had a Sharpe ratio of 1.4. The average Sharpe ratio across the sample was 1.15.

Punter Southall Aspire CEO Steve Butler says: “We didn’t include Nest because it is a master trust. But these figures are really strong. They obviously have some of the country’s brightest minds working on their investment proposition. These figures reinforce my point that there are big differences between providers’ performance that need to be monitored on a regular basis.”

Capital Cranfield professional trustee Andy Cheseldine says: “There are different ways to measure risk, but these figures do not surprise me. Nest is an efficiently run organisation with low costs.”