The WM universe of pension funds has continued to benefit from the high returns available in the Far...
The WM universe of pension funds has continued to benefit from the high returns available in the Far East and the US. In the second quarter the average fund produced a total return of 3.7%, following on from 5.9% in the first quarter. Overall European equities continued to post disappointing returns in the second quarter while bonds produced negative returns
According to The WM Company, which measured 1,178 funds with assets worth £351bn, portfolios benefited from the continued recovery in Japanese and Asian equities. The second quarter return from the Pacific ex Japan equities was 25.2% compared to a return on the FT/S&P Pacific ex Japan index of 20.9%. During the same period Japan equities returned 14.6% compared with the index at 11.2
Since the end of last year portfolio exposure in the two sectors has increased. The average weighting in Japan has risen by 0.7% to 3.5% whereas the rise in Pacific ex Japan has been 0.8% to 2.7
The increased exposure in Asia has been at the expense of the European sector and some fixed interest stocks. Europe was reduced from 9.7% to 8.6% and in total the fixed interest sector, which includes UK bonds, UK Index Linked Bonds, cash and property, was reduced by 2.2%. The only increase in exposure was in overseas bonds from 3.9% to 4
Over six months to 30 June Europe returned only 2.9% compared with returns from the US and UK of 17.2% and 12.4% respectively. In the same period managers increased portfolio exposure to the US from 4.5% to 5.1%. Funds still received healthy returns from the US in the second quarter even in the light of interest rate increases and concern over a market correction on Wall Street. The sector returned 9.5% in the second quarter against a FT/S&P North America Index return of 9.6
Investment in UK equities showed a return of 2.9% for the second quarter, well ahead of the index return of 2.3%. This was the highest level of quarterly outperformance in over five years. In the first half of the year exposure to UK equities increased from 50.6% to 51.4%. In addition exposure to overseas equities increased from 20.6% to 21.9
Fixed interest stocks again provided a poor return for managers. Returns from UK and overseas bonds fell by 0.9% and 1.9% respectively. To the year to date returns from both sectors fell by 2.1%. During this time money has flowed out of UK bonds and UK Index Linked stocks reducing portfolio exposure. Over the same period exposure to overseas bonds has increased from 3.9% to 4
Altogether some £2.5bn was withdrawn from Western equity markets and cash during the quarter and the money transferred to bonds and Pacific equities. In the 12 months to 30 June the total assets of pension funds grew by 12.1% and since the start of the year there has been growth of 9.9
Peter Warrington, director at the WM Company, said: "The picture for equities this quarter is a very similar one to the last. The Far East has continued its strong recovery. North America generated good returns but Europe was the weakest overseas market for the second successive quarter
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