Standard Life and Scottish Widows are going overweight equities in their pension managed funds. ...
Standard Life and Scottish Widows are going overweight equities in their pension managed funds.
Signs of economic recovery and the low price of equities is prompting their move, coupled with a sense bonds are expensive and yielding too little.
As of 31 January, the Standard Life Pension Managed fund, which is benchmarked against its Standard & Poor's Micropal universe, was modestly overweight equities, neutral to slightly overweight property and moderately underweight bonds.
George Walker, investment director at Standard Life Investments, says: 'We do have an optimistic outlook for the market and the Government has a lot more room for movement. There have been signs of modest increases in corporate profits and there has also been raising of capital and increasing government expenditure.
'We expect the global economy to continue its improving trend throughout 2003 and 2004 based on activity from the Government and monetary stimulus.'
Head of global strategy for Scottish Widows, Andrew November, says the Scottish Widows Pooled fund has recently gone overweight UK equities by 3%, bringing the total weighting to 55%. November is looking to take that up to 5% and sees continued market weakness as a sign that now is the time to buy.
He says: 'We were neutral in 2002 with bonds and equities but overweight property. When the UK economy fell towards the end of the year, we moved overweight equities, an area in which we had been underweight for most of 2000 and 2001, as we believed for the first time the equity market in the UK was showing good value. Examples of stocks include Vodafone and Glaxo. We are reasonably comfortable with the increased equity content because we are buying for our clients in the long term.'
Both Walker and November are bearish towards the UK bond market at present. The Standard Life fund has 11% in UK bonds and 5% in overseas, while the Scottish Widows fund is 3% underweight in UK bonds at 8%.
November says: 'Bonds are overvalued at the moment and yields are too low. We see economic growth but it will be slow, which is a risk to the bond market.'
Walker believes bonds are expensive and yields are at rock bottom. At some point, he cautions, there will be an upturn in inflationary expectations that will be adverse for the bond market.
He says: 'With the rising government debt levels round the world, investors are needed to take up the supply. We tend to favour corporate bonds over government and overseas over domestic.
'We prefer equities to bonds because they are cheaper and there is a problem of increasing supply on the bond side.'
In terms of property weightings, the Standard Life portfolio is broadly neutral, at 2.7%. Walker likes commercial property at present but favours the asset class outside of City of London offices.
November believes property will see lower returns than in 2002 but does not feel that the commercial property market is a bubble about to burst. 'I would look at an 8%-9% increase in total return over the next three years,' he says.
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