UK pension funds posted a negative return of –1.8% for 2000, say estimates by performance measurement company WM.
The disappointing results for 2000 reflect the fact that equity markets showed exceptional volatility, with technology and telecommunication stocks levelling the remarkable gains of 1999.
The WM survey suggests that despite the high volatility last year, the results do not show the expected wide range of returns, as was the case in 1999.
“With the collapse in the technology and telecom markets, we expected some of the star managers of 1999 to suffer badly. This isn’t the case, these managers captured the TMT upside – taking profits at the top of the market – and avoiding the downside. They now have a significant performance buffer built into their track records compared to their peers”, says Peter Warrington, executive director of WM.
The fall of internet technology and telecommunication company values were contrasted by the rise in more traditional stocks; such as in the consumer and utility sectors.
Despite the negative results, UK pension funds outperformed the FTSE all share index by 1.5% (-4.5 against –6%), the widest lead by funds in 10 years. Japanese and Pacific equities showed declines of around 25% and 17% respectively for the UK investor. North America was flat and European equities gave positive returns of 5%.
In total, equities gave negative returns of –6.5% for UK pension funds, in comparison to the FT/S&P World ex UK index, which indicated returns of –4.1%.
Bonds and property, on the other hand, showed positive returns. The uplift from the weakness in sterling made overseas bonds a fruitful investment with returns of over 12%. UK bonds returned over 8%, mainly from the income stream due to stable interest rates.
The year showed a slight allocation shift from equities to bonds, according to the survey. UK equity exposure is expected to fall from 51% to 48.9% when the figures are finally tallied, with overseas equities exposure set to drop from 24.4% to 23%. At the same time UK bond weighting should amount to 10%, up from 8.1% in 1999.
Long-term returns for UK pension funds are safely in the positive territory, however, at 11.9% over five years and at 14.4% over 20 years.