British pension fund managers themselves say they are shying away from the UK stock market as the year begins, amid worries that equities are overvalued.
The economy may overheat around general election time, raising concerns about inflation which could in turn lead to a burst of monetary tightening later on, they say.
British Gas’ pension fund management admits to caution on equities. “We’re not bailing out but are steadily raising defensive assets,” says Roy Peters, head of pension fund investment.
“This year looks trickier than most to read,” he adds, citing factors such as the UK’s six-year economic upturn, stretched US stock valuations and problems in getting the Japanese economy going.
“We’re slightly underweight in UK equities – we think the market is on the high side,” a strategist at another of the country’s biggest pension funds says.
This is going to be a year of strong growth, meaning the labour market will tighten further, putting pressure on prices, he says. But property seems worth buying. Rental growth had reached its bottom and is expected to pick up.
The same scheme is overweight in Japanese equities, and a bit uneasy about it. “To us, Japan really doesn’t seem to have the bits in place for a sustained economic recovery.”
Michael Duncombe, chief executive of the Post Office pension scheme, says that for the time being the scheme will stick with its current asset allocation, based on the last actuarial valuation done in 1994. A new valuation will be done on March 31.
At the end of last year the £11bn closed scheme held 53% of its assets in UK equities, 23% in overseas equities, 10% in property and 7% each in fixed-interest and index-linked securities.
Another major pension fund is driven by its maturity, and has a high proportion of index-linked assets, an official says.
“Our strategic mix recognises that index-linked securities are a suitable asset for schemes with real liabilities,” says a strategist at a major British pension scheme which has two schemes at above-average maturity.
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