UK - The rally in equity markets - which has seen the FTSE100 top 4300 - will not spur reinvestment and could spark a further exodus, mangers warn.
Credit Suisse Asset Management director, UK institutional business, Philip True, believes the rise could encourage schemes to lock in their gains by selling equities in favour of bonds.
Isis Asset Management head of institutional business Robert Matthews agreed.
He said: “Trustees are a lot more comfortable with their schemes and the recovery in the equity market has taken pressure off their funding requirements.
“The temptation is that as equities rise, schemes will say: ‘We didn’t take the opportunity before and now we have.’ They don’t want to go through the same worries they did when the market dived in March.”
Newton Investment Management vice-president James Bloom says the move to liability-matched mandates will further prevent any switch back into equities, as schemes generally see bonds as the best match for them.
He said: “The valuations and the outlook for equities has improved, but to be honest the move to bonds has not been driven by fear of volatile and underperforming markets, it has been on the back of a move to greater liability matching.
“We’re seeing people look keenly at liability-matched portfolios, and the easiest way to do that – particularly for a mature fund – is through the use of bonds.”
But Chiswell Associates head of pension funds marketing Simon Hill disagree, and insisted the arguments against equities were “absurd”.
He said without the outperformance generated by equities, schemes would not be able to generate the cash needed to meet their obligations and that to “indulge in panicky adjustments” was not advisable.
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