UK – The shift from balanced to specialist investment management, which has taken place among pension funds in the last 10 years, is slowing down Russell/Mellon says.
“Certainly in the last 10 years there has been a decline in balanced investments as pension funds have wanted to invest in asset categories in the weights that suited their own firms,” the firm’s research and development director Alan Wilcock told IPE.
He was speaking at the end of a press conference at which the firm said balanced pooled funds achieved a median return of 6.2% in the fourth quarter of 2004 – the results of a study on a sample of 79 schemes with a total of about £321bn (€473.1bn) assets.
Over 2004, the average return on balanced funds was 10.2%, Mellon said, confirming an estimate it released earlier this month. WM Co. said schemes returned 11% in 2004.
“The balanced section has declined again in 2004 but this is slowing down from previous years. There is a number of balanced funds in that section which are opened to DC defined_contribution funds and they will still be getting positive inflows,” Wilcock continued.
The Russell/Mellon study also revealed that pension funds with a balanced investment strategy are allocating less to UK equities, with the asset class hitting an “all time low” since 1989.
Hall said that the balanced segment, which in 2004 was worth £25.3bn, has seen managers shifting assets from the UK to overseas equities.
The quota allocated to UK equity has fallen from 53.1% at the end of 2003 to 51% a year later. Overseas equity, especially European, on the other hand record an “all time high”.
Ten years ago the typical equity allocation would have been 70:30 UK/foreign while today it stands at 61:39.
Managers are also moving money from bonds, which in 2003 accounted for eight percent of the balanced allocation compared to 7.3% in 2004, to cash investments growing from 3.8% to 5.3% in the same period.
The fastest growing investment class was index-tracking, which has risen from £14.1bn in 1994 to £175.4bn this year.