Balanced funds suffer worst quarter for 15 years

UK- Median returns of –15.6% for balanced funds in the third quarter were the worst for fifteen years according to the latest survey from Russell/Mellon CAPS. Over the twelve months to the end of September, the balanced fund median was –14.9%. The dismal equity performance of the second quarter ran into the third quarter with double digit negative returns.

According to CAPS’ survey, which covers 86 separate asset managers with over £185bn in pooled funds, the effects of poor performance overseas was, in local terms, exacerbated by Stirling’s appreciation against other currencies during the same period.

Japan and the Far East ex Japan provided the best equity returns of –14.3% and –15% respectively. UK equities returned –19.6% and North America did little better with –19.5%. European equities ex UK had a disastrous month returning –28.8%.

All the other asset classes produced positive returns with UK fixed interest clocking 5.6%, property 2.2%, UK index-linked gilts 2%, cash 0.9% and overseas bonds 0.7%.

As with the second quarter, the overall equity weighting in balanced pooled funds fell again, this time 3.6%, while funds increased their holdings in fixed interest and cash.

By the end of September, holdings in UK equities reached their lowest ever recorded level of 51.4%. In contrast, holdings in UK fixed interest and overseas bonds rose to a respective 10.8% and 5.8%.

Holdings in overseas equities fell almost two percentage points to 25.3% while cash holdings rose almost five fold from 1.1% to 5.3%.

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