UK - The decline in UK equity allocations for pension schemes will accelerate, fund managers predict.
The latest Russell/Mellon CAPS figures showed that the sustained migration from UK equities has benefited overseas equities and in particular US equities.
The average percentage of UK equity holdings has fallen consecutively for the last three years and over almost 6% in that period.
In 2001 the US equity allocation stood at 7.2%, a substantial increase on the previous year where the average US allocation was 4.7%.
State Street Global Advisors head of marketing Kanesh Lakhani said: “Given how much UK pension funds have in the UK and Europe, allocations in US equities have been phenomenally low. Funds are beginning to look at equity allocations on a global basis and should push up US weightings.”
The shift in asset allocations has coincided with the rise in the FTSE World ex-UK Index, which has a 60% exposure to the US.
Other funds which are uncertain of the economic drivers are allocating an equal proportion of equities to North America, Europe and the Far East. Both moves increase US weightings among pension funds.
Russell/Mellon CAPS head of research and development Alan Wilcock said that he anticipated the migration out of UK equities would continue.
He said: “If you look at the three economic zones [the US, the Far East and Europe] the Far East has been very poor and remains out of favour and the prospects over the last couple of years for Europe coming out of recession haven’t been great.”
Royal & SunAlliance Investments head of institutional business Robert Matthews said that the overseas equity allocation may eventually bottom out and equal the UK equity ratio.
He said: “Pension funds have realised that they can gain in terms of diversification by going overseas. The UK/overseas equity ratio is heading towards 50-50.”
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