EUROPE - One in three European funds are looking to adopt a new approach to asset allocation, a survey by JPMorgan Fleming has found.
The New Sources of Return Survey 2004 found a third of respondents were considering asset allocation change, primarily to adopt an active overlay strategy.
“Forty-percent of institutions manage some or all of their asset allocation passively while 80% employ some form of active asset allocation,” JPMorgan said in a release.
“Of these, 25% use an asset allocation overlay which allows asset allocation to be managed separately from the underlying assets. One in three institutions is looking to change their approach to asset allocation, principally to adopt an active overlay strategy.”
Results showed fixed income dominates current asset allocation, accounting for half of European institution’s portfolio, with equities accounting for on average 30% of a portfolio.
Around 30% of a European institution’s equity exposure is managed passively and 70% actively with constrained active management dominating.
“In future, institutions appear to be looking for greater polarisation between pure passive index-tracking for some parts of their portfolio and fully unconstrained active management for other parts,” JPMorgan said.
“While intentions are mixed across different markets, responses indicate that institutions generally intend to reduce their use of constrained active management and increase unconstrained active management. This intention is most in evidence in the Netherlands where four out of five respondents want to increase their use of unconstrained active investment management.”
Commenting on the findings, JPMorgan Fleming head of European institutional business, Peter Schwicht (pictured), said: “The trend of relative performance which has gripped the institutional industry for so long is clearly in decline.
“With almost half of institutions already using absolute-return strategies for at least part of their portfolio – and about the same proportion using or looking to use a liability-based benchmark, it is clear that Europe’s pension funds are more interested in limited absolute losses and keeping pace with liabilities than rewarding fund managers for relative performance against the market.
“All this augurs well for a time of exciting change in the European pension fund industry.”
Almost 200 European funds (excluding UK funds) were surveyed.
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