UK – UK schemes’ equity allocation has hit a new year-end low of 48.7%, according to the latest results of the CAPS Pooled Pension Fund Update released by Mellon Analytical Solutions.

While the total equity weighting within balanced pooled funds rose 2.3% to 85.4%, relative weightings of UK to overseas continued to change, said a statement released today.

“Over the course of 2005, balanced mangers moved money out of UK equities and into overseas equities,” said the report.

“Consequently the average UK equity weighting fell to a new year-end low of 48.7%, while the average overseas equity weighting reached 36.7%, a new high since our records began at the end of 1989.”

MAS publications and statistics manager Daniel Hall told IPE that this shift reflects a trend affecting the UK pensions industry as a whole. He stated that one of the reasons behind this equity shift could be a need for greater diversification.

The CAPS update also revealed that UK equity managers underperformed over one, three, five and ten years despite beating the FTSE All-Share Index in the last quarter with a median return of 4.6% versus 4.3%.

Meanwhile, the average return for balanced funds in 2005 rose to 21.6%, and positive returns were achieved in all major asset classes, according to MAS.

Average returns for balanced funds stood at just 10.2% in 2004 and 18% in 2003.

Balanced pooled funds also saw a median return of 5.3% in the fourth quarter of 2005, resulting in “a double-digit performance” for the third year running.

“Since the end of the equity bear market in early 2003, balanced pooled funds have been fighting their way back,” Hall said.

“Strong equity performance throughout 2005 has meant that these funds have now finally got ahead of their position at the start of the decade.”

According to Hall, the median return since the start of 2000 until the end of 2005 was 2% per annum.

Key results for 2005 included a 22% market return for UK equities, 25% for overseas equities and 19.2% for property.

Furthermore, emerging markets, Japan and Pacific ex Japan gave the best market returns in overseas equities with 49.9%, 39.6% and 28.6% respectively.

A MAS statement added that North American equity return – pegged at 20% - was boosted by the strengthening dollar against the pound, while the 23.6% return for European ex UK equities was adversely affected by the weakening euro.