UK - Schemes are not planning a major shift out of equities when the market improves, research from Mercer Investment Consulting shows.
Its study found that fund managers and pension schemes are keeping faith with equities despite their poor performance over the past three years.
And the consultant – which surveyed 90 medium-to-large schemes, more than 150 investment managers and 60 consultants – found that only 15% of schemes plan to increase their bond weightings, despite the subdued predictions for equities in the medium-term.
Mercer’s study shows that 30% of schemes plan to stick with equities – although a similar number plan to diversify into property, hedge funds and emerging market bonds.
Of the schemes that do intend to reduce their equity exposure, 74% favour only a modest decrease of up to 10% over the next 12 months.
Mercer UK head of investment consulting Andrew Kirton said the results contradicted the view that pension funds were set to dump equities in substantial quantities after any “bounce” in equity markets.
He added that whatever the longer-term merits of using bonds to match liabilities, schemes were not going to increase their fixed income allocations because the “lowest yields in a generation” were deterring investors.
Mercer said the majority of respondents believed equity markets would be slow to recover, with 52% expecting generally dull market conditions over the next three to five years.
Tilney Investment Management director Peter Bickley said: “People have attention spans of 30 nanoseconds.
“Just because we’ve had a bear market, they think equities are bad.
“Well, when equities recover – and they will – they’ll find that valuations aren’t as scary as they thought and remember that equities are quite a good idea.”
Threadneedle Investments institutional sales director Stephen Holt agreed and said that schemes were “loath to turn down the risk dial after losing 50% of their assets”.
Holt said that because bonds had performed so well over the past decade, all the risk was now on the downside for investors.
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