Institutional investors have been increasingly allocating away from their domestic markets for many years – but some still remain strong supporters of local assets.

Mercer’s annual European asset allocation survey, published this week, showed a year-on-year decline in the average equity holdings for European pension funds – 25% in 2019, down from 28% in 2018 – and a corresponding increase in bond investments, from 51% to 53%.

Digging deeper into the data shows a varied picture from country to country, however. Belgian pension funds on average invest 45% of their portfolios in equities, the highest of any of the 12 countries assessed by Mercer.

Belgian funds also invested the most in their domestic stock market – 30% of investment portfolios on average – although with the MSCI Belgium index dropping 23.2% during 2018 in euro terms, this was unlikely to have been a happy recent experience.

At the other end of the scale, Danish pension funds allocated just 1% of assets to their home equity market, and 11% to equities overall – the lowest figure of the 12 countries in both regards. The MSCI Denmark index fell 11.2% last year.

“Equity allocations are typically smaller than they were a decade ago,” Mercer said in its report. “However, the construction of equity portfolios has evolved in an increasingly thoughtful manner, with reductions in domestic bias and with the gradual acceptance of emerging markets as a material component of the overall equity universe.”

It is worth noting, of course, that domestic equity markets vary even more than those who invest in them: stock exchanges such as those in the UK, Germany and France, for example, tend to be home to multi-national firms and so are themselves less domestically focused.

Equities are not the whole story, however. Using Mercer’s data on fixed income allocations, IPE has constructed a picture of which countries’ pension funds allocate most towards their domestic equity and bond markets.

Looking just at traditional fixed income investments, Mercer reported that Ireland and Portugal both invest almost exclusively in their home markets, with 94% of their bond holdings listed locally. Within this, 90% of Irish pension funds’ bond holdings are allocated to Irish government bonds and 4% to corporate issuance. For Portugal, the figures are 72% and 22%, respectively.

Portuguese funds have one of the highest average allocations to fixed income of any of the 12 countries assessed – 67%, including non-domestic bonds – meaning overall Portuguese pension funds invest 75% of their portfolios in domestic equities and bonds.

At the other end of the scale, Swiss pension funds on average allocate just 18% to domestic assets, made up of 11% in Swiss equities and 7% in local bonds.