UK - Bond ratios in UK pension funds could rise to match equity allocations in the next two to three years, according to F&C Management.
The fund manager claims that equity market volatility, FRS17, pension fund legislation and corporate bonds superior risk/returns are all contributing to a flight to the asset class.
Joint head of institutional business Patrick Johns said: “It seems likely that the basic requirements encompassed by FRS17 will stay in place. In that case, it is quite possible that UK pension funds will see their asset allocation between equities and bonds approach 50-50 in the next two to three years.”
Head of fixed income Helene Williamson forecast that corporate bonds would continue to provide attractive long-term returns.
According to Merrill Lynch Indices, corporate bonds have a superior risk/return compared to other mainstream US asset classes over 20 years to 2001. Williamson said: “In the UK last year, sterling corporate bonds produced their strongest ever performance, outstripping gilts by 3.4%.”
F&C Management predicts that the potential for outperformance of credit over sovereign debt will boost UK funds’ demand for specialist fixed income management.
Last week Russell/Mellon CAPS figures for 2001 showed that UK equity allocations had fallen for the third year running and by almost six percentage points in total during that period.
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