UK - Pension funds would undergo a seismic shift away from their current UK equity weighting if Britain joined the euro, industry experts claim.
Expectations of joining the euro were raised earlier this month following Prime Minister Tony Blair’s pro-euro speech at the Labour Party conference.
WM Company head of research Eric Lambert said overseas equity weightings could more than double to up to 25% if the UK joined.
WM figures show that the average pension fund currently holds 48pc of its portfolio in UK equities and only 10% in European equities.
Lambert said: “The entry of the UK would mean that the UK equities will not hold on to its domestic bias.”
He added that in the past five years investment flows had been negative to UK equities with UK weightings dropping 7 points to 48%.
Fresh Field Waterhouse partner Belinda Benny added: “There will be implications for investments for asset allocation. In particular, trustees will need to review their UK/overseas asset allocation and possibly adjust their statement of investment principles too.”
Morley Fund Management strategist Mike Grimble said euro entry would also enhance investment opportunities.
Grimble said: “The greater weighting in fixed interest in Europe may mean UK pension portfolios will be pulled in this direction.”
On the topic of currency risk, Grimble said a single currency would offer stability.
Grimble said: “Currency risk could reduce overseas equity returns, but with the greater stability of pension portfolios the mass effect would be stronger growth prospects due to the decrease in volatility.”
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