UK - Pension funds are increasingly moving towards passive management, according to Russell/Mellon CAPS.
The performance measurer said the proportion of funds that incorporate some element of passive investment in their fund had increased from 3% at the end of 1993 to 32% by the end of 2003.
Ten years ago, at December 31, 2003, pension funds invested 3% of their assets passively, whereas passive investment stands at around 15% today.
In its pension fund analysis for 2003, Russell/Mellon said that UK weightings were at an all time low, with the average UK weightings falling to 41.5% by the end of 2003.
In sharp contrast, the overseas weighting at the end of 2003 was at its highest ever year-end position of 26.7%.
Over the year, pension funds moved money out of UK equities and into US equities.
“Holdings in UK bonds continued to rise this year while overseas bond weights continued to fall. The average UK bond weighting of 19.4% at the end of the year was the highest level seen since 1983/84. At the end of 2003 around 95% of all bond investment was in the UK. This is the highest level seen since the end of 1987,” Russell/Mellon said.
The weighted average return for UK pension funds in 2003 was 16% and despite the strong performance this year, the poor performance of the previous years meant that over the longer-term pension funds have only just started to get back into the positive territory.
Over three years, the weighted average return was -2.7% while over five years pension funds returned 1.8%.
The median return for pension funds was 16.9% over 2003, indicating that smaller pension funds performed better than larger funds over the year due to their higher allocation to equities.
UK equity managers continued to outperform with median discretionary return for UK Equities was 21.5% in 2003, against the FTSE All-Share index of 20.9%, representing a fourth consecutive year of outperformance by UK equity managers.
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