Key TakeawaysThe cheapest UK funds have attracted the most flows in the last five years.Among GBP allocation funds, the home bias toward UK stocks has fallen sharply in a decade, replaced by significantly high.UK investors rely heavily on multi‑asset funds-of-funds, which now make up around 63% of total allocation fund assets.
For years, multi‑asset funds have been a go‑to option for UK savers seeking a simple, diversified approach to long‑term investing. But the latest Multi‑Asset Trends in the UK and Europe 2026 report shows just how dramatically this market has evolved—and how differently the UK behaves compared with the rest of Europe.
UK investors have become some of the most price‑sensitive in the world, reshaping the landscape around them. Meanwhile, rising exposure to both US equities and the dollar is going hand-in-hand with a downward trend in domestic allocations.
Cheapest Funds Attract Flows
An unmistakable conclusion from this year’s study is that cost shapes UK investor behavior.
Nearly two‑thirds of UK allocation fund assets now sit in the cheapest two fee quintiles, according to Morningstar’s analysis. This is far more concentrated than in Europe, where assets remain spread more evenly across fee buckets. And when looking at net flows, the pattern is even clearer: the cheapest quintile of funds has dominated UK flows for the past five years.
UK Investors Embrace Funds of Funds
Two structural reasons stand out. First, banning commissions changed the economics of advice. Since the Retail Distribution Review, advisors have had far fewer incentives to recommend higher‑fee products. This shift has created intense competition and forced costs downward across the industry.
Secondly, UK investors embraced funds-of-funds (FoFs)—especially those built on passive components. The UK is distinctive in its heavy use of multi‑asset FoFs, which now make up around 63% of total allocation fund assets—up from 44% a decade ago.
For UK allocation funds’ net assets, FoFs have attracted more assets over the last decade, and their median cost has fallen more rapidly than directly invested allocation funds.
Many of these vehicles rely significantly on passive building blocks, giving them a structural cost advantage. This isn’t matched on the continent, where FoFs are less popular, and remain dominated by active holdings.
The result is a virtuous circle: Lower fees attract more flows, which in turn spurs more low‑cost product development and fee compression.
And Morningstar’s research shows that the cheapest quintile of UK funds has persistently outperformed costlier peers, even after accounting for category differences. So paying less has paid off for investors.
US Exposure Is Rising—and So Is Currency Risk
Another major trend is the steady rise in US equity allocations across UK multi‑asset funds. This happened because the US became a larger part of global indexes, but also because UK investor appetite for “home bias” has been on the slide for more than a decade.
Among GBP allocation funds, the home bias toward UK stocks has fallen sharply in just a decade, replaced by significantly higher US exposure. Even Vanguard LifeStrategy, often seen as a benchmark for asset allocation, recently announced that it was trimming UK equity and bond exposure to reflect global market realities.
Over the past decade, the US—especially its large‑cap technology names—has dominated global returns. But higher US allocations come with a side effect, that of greater exposure to the US dollar.
While funds routinely hedge foreign currency risk on bond holdings, they often leave equity currency exposure unhedged. This means that the overall currency profile of a portfolio is increasingly driven by US stock weightings.
In 2025, that mattered. The US dollar weakened against the pound, which damped returns for UK portfolios with sizable unhedged US equity stakes. Traditionally the dollar has functioned as a safe‑haven, softening losses during equity selloffs, but that relationship—and therefore the diversification benefit—has become less reliable in recent years. That has prompted some managers to become more deliberate when it comes to currency, for example by partially hedging some of their dollars.
How Multi-Asset Funds Performed in 2025 
The UK Multi‑Asset Market Keeps Evolving
The fee story and the US‑exposure story are the headline acts—but looking at fund flows by category reveals other dynamics when it comes to investor demand.
With UK bond yields normalizing and inflation easing, some investors have moved back up the risk spectrum. Balanced and aggressive-allocation funds saw steadier flows in 2025, while more conservative funds remained out of favor.
While cautious funds performed relatively better against their benchmarks in 2025, they have not regained investor confidence after the bruising drawdowns of 2022, while at the same time they face increased competition from cash and fixed income, thanks to that normalization of interest rates and bond yields.
What Should Multi-Asset Investors Do?Keep a Close Eye on Costs, But Don’t Let Cost Be the Only Factor
Lower fees have a strong track record of supporting better outcomes, but investors should also evaluate objectives, risk profile, and the overall value proposition of a fund. The Morningstar Medalist Rating, our forward-looking assessment of a fund’s merits can help investors.
Be Aware of Regional and Currency Exposure in Portfolios
The US market has become more concentrated, but rising US allocations also mean UK investors may be taking on more foreign exchange risk than they realize. At the same time, different investors have different ideas about what’s the right level of domestic bias and overseas exposure.
Understand the Design of Multi‑Asset Funds
Two funds in the same category can have very different objectives, investment styles, or reliance on passive and active management.
This article is taken from the Multi‑Asset Trends in the UK and Europe 2026 report.
The author or authors do not own shares in any securities mentioned in this article. Find out about
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