Allocation funds tend to come with higher costs in Europe compared with the UK, where differences in regulation and fund distribution are putting downward pressure on fund costs.
Lower-cost multi-asset funds have continued to maintain a performance advantage over competitors, with the cheapest products dominating net flows over the last five years, according to research by Morningstar.
Its report, Multi-Asset Trends in UK and Europe 2026, found allocation funds tend to come with higher costs in Europe compared with the UK, where differences in regulation and fund distribution are putting downward pressure on fund costs.
Defence sector funds top $83bn as inflows reaccelerate
UK multi-asset investors exhibited "a high sensitivity to fees", the report stated, expressing a clear preference for the cheapest multi-asset funds.
This has also been an added tailwind for the rapid growth of managed portfolio services in the UK, the report said, which has taken market share from multi-asset funds and put additional pressure on fund fees.
In Europe, the emergence of lower-cost passive investment options in equities and bonds has led investors to seek multi-asset funds with more attractive relative pricing, although fee competition is slower and less aggressive than in the UK.
Tom Mills, principal of multi-asset strategies at Morningstar, said "investors are voting with their feet" as low‑cost multi‑asset funds dominate flows while pricier products fall further out of favour.
"Our research shows that fees are a crucial factor for investor flows and long‑term success, with the cheapest products consistently winning market share and outperforming costlier peers," he continued.
However, such funds struggled to outperform their category benchmarks, especially the more aggressive categories, with fees, allocation differences, market-timing attempts and security selection all a factor in the underperformance.
Vanguard cuts UK home bias on £52bn LifeStrategy range
In terms of market performance, equities were found to have comprehensively outperformed fixed income and cash in the five years to the end of 2025, making asset-allocation calls "critical to investment success", Morningstar's researchers said.
UK equities could not keep pace with the US but produced slightly higher returns than global equities overall.
Meanwhile European equities, as measured by the Morningstar Europe index, outperformed global markets by a wide margin in 2025 but lagged US stocks over five years.
Elsewhere, having suffered painful losses in 2022 amid surging inflation and aggressive interest rate hikes, the prospect for bonds – particularly shorter-duration bonds, credit and high yield – began to improve, with better returns in 2025.
Despite a strong year for gold, which over the last 12 months has hit a high of over $5,626, according to data from MarketWatch, the metal remained a tactical allocation for most multi‑asset funds rather than a core holding.
