Multi-asset funds with strict mandates outperformed their flexible peers in 2012, according to the latest fund research by S&P Capital IQ.

The research found that in 2012, fully flexible asset allocation funds generally underperformed in comparison to multi-asset funds whose asset allocation is constrained by their mandate.

Funds within the global neutral in euro peer group, for example, returned 8.9 per cent in 2012, while those in the flexible peer group returned just 6.7 per cent. Meanwhile, funds in the global neutral US dollar peer group returned 8.7 per cent compared to an 8.4 per cent return by the global flexible US dollar funds, the firm said.

The S&P fund research said that consistent underperformance of flexible multi-asset funds - defined as funds that can invest their portfolios anywhere from zero to 100 per cent in risk assets - may be due to the influence of political news reducing the reliability of both fundamental and technical asset allocation tools.

Meanwhile, asset allocation balanced was the best-performing peer group in 2012, returning 11 per cent, compared to 10.9 per cent for the sterling aggressive peer group and 7.5 per cent for the sterling defensive peer group. Over three year and five years, the sterling neutral peer group outperformed all other sterling peer groups, returning 5.8 per cent and 3.5 per cent respectively, on an annualised basis, the firm said.