UK- UK pension funds lost a further 5% in the first six months of the year according to initial estimates from performance measurement consultancy WM Company. The latest figures follow two consecutive years of negative returns, the first time this has happened since the early 1970s.
The split between equities and bonds showed a further shift towards bonds over the period, continuing a four year trend. But WM says this is due to the relative weakness of equity markets in comparison with firm bond markets and adds that there is scant evidence of an explicit switch away from equities.
WM executive director Eric Lambert believes 2002 will be remembered as a year in which equity investors lost confidence. “The aftermath of the Enron and Worldcom scandals continue to cast a pall over the equity markets. Investors will need reassurance before they start buying in the volumes necessary to revive equity markets, particularly in the U.S.
“However despite the gloom and volatility, there has been a move towards a more rational approach to the valuation of equities,” he says.
UK bonds returned around 3% compared with –9% for UK equities and –8% for overseas equities. WM says that Fund owners who switched equities for bonds will have benefited from strong short-term performance results.
The majority of sectors produced a negative return, with TMTs continuing on their downward spiral. Strongest returns came once again from the old economy with cyclical consumer goods producing double-digit positive returns. Basic industries, utilities and resources also posted positive returns.
North America showed negative returns of 18% for UK investors. Europe was –6.5 per cent, while Pacific (ex Japan) fell back by almost 3% and Japan, in contrast, produced a return of 3%.
An appreciating Euro against the U.S. dollar and sterling has had an impact and UK investors have seen their US holdings punished and Eurozone holdings rewarded. UK bonds returned 3.1% while overseas bonds returned 4.5%.