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WM survey puts UK fund returns at 10% for 2006

UK - Pension funds in the UK finished 2006 with overall returns of 10%, WM Performance Services found in its latest survey, which covers two-thirds of the UK pension fund market.

Economic growth, strong corporate results and a drop in commodity prices were among the factors contributing to positive market returns. However, results were held back by persistent anxiety over a US economic slow-down and its implications, WM said.

The strong performance of nearly all equity markets (except Japan) could not be fully used by UK pension funds as most are not currency hedged and the pound was strong.

Bond markets were broadly flat or negative, the study notes. UK bonds returned under 1%, overseas bonds fell by 6%.

The average annualised three-year return of UK pension funds is 14%.

In another report published today, Mellon claimed 2006 marked the fourth year of positive investment performance among UK pension funds, with the average fund returning 8.8%. The group estimated the weighted average return over the four years to the end of December at 13.4%.

In a statement, publications and statistics manager Daniel Hall said the four-year return was "good news" but that "for many funds the pace of increase in liabilities is still a major concern".

The UK pension fund sample comprises more than 500 funds worth £200bn (€296bn).

Meanwhile, Mellon released its latest CAPS survey of pooled pension funds stating that balanced pooled pension funds in the UK reported a 0.2% median return in November, compared with 2% the previous month. Active UK equity managers returned 0% for the month, net of fees, compared to the FTSE All-Share Index's -0.3% for the same month.

According to Mellon balanced pooled funds returned 12%, 14% and 6.9% over one, three and five years to the end of November.

The survey, which covers 79 asset managers with pooled funds worth £413bn (€611bn), found weightings in UK equities fell 0.3% to 46.9%. Mellon said the drop - a new low for the asset class - reflected managers moving money out of the sector. In contrast, overseas equities weightings increased just over 6% to 36.1%. 

Continental European equities - which remained the primary overseas equity asset class for balanced funds - and emerging markets both generated positive returns. North America achieved a new high with a 9.7% end-of-month weighting.

Real estate gave the best non-equity return of 0.9%. UK bonds rose 0.2% to 7.4% as managers moved money into them over November; in contrast, international bonds gave the only negative non-equity return of -0.5%.

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