Ian McLeish, manager of the century old Scottish Investment Trust says pension funds are likely to r...
Ian McLeish, manager of the century old Scottish Investment Trust says pension funds are likely to reduce their equity holdings as part of a longer-term trend of re-weighting assets.
The big build-up in equity holdings by pension funds in the 1980s and 1990s is unlikely to occur again, McLeish says, and that will contribute towards keeping the market from experiencing another 1990s-style equities boom.
"Pension funds are still probably overweight in equities," SIT says in a document released by McLeish.
Pension funds are unlikely, however, to unload their holdings all at once, and are probably going to do so over time, which should avoid adding to the short-term volatility in markets.
In terms of market performance, SIT feels that the bottom may have been reached, and corporate earnings, and shareholder returns should see improvement over the next year.
SIT is forecasting UK earnings per share growth to jump from a ratio of -2 this year to +11 in 2003, resulting in a marginal fall in the price/earnings ratio from 12 this year to 11 next year.
The trust is also forecasting the return of dividend yields as the key to attracting investor attention.
Yields as a percentage of investor returns fell to 20% in the 1990s from 40% historically, and investors will be more keen on getting their money back through dividends rather than promises of share price growth, McLeish says.
Long term returns are likely to be between 7%-10%: this is not as good as the 1990s, but is still better than bond yields and will be enough to ensure equities return to favour among investors.
"This is probably a good time to get into equities," McLeish adds, particularly for those who have never considered this type of asset class before.
The caveate is that much depends on the pace of recovery in the US, and that investors need to ensure they understand the relationship between risk and reward.
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