Although the Myners report first appeared to do little to encourage institutional investors to expan...
Although the Myners report first appeared to do little to encourage institutional investors to expand their investment range outside the UK, it now looks as if pension fund managers are getting the point.
According to a recent Caps survey of balanced pension funds, the aggregate weightings to overseas equities has hit its highest point since figures were first calculated by the actuarial data provider more than 20 years ago.
But with just 27.7% invested outside the UK market this hardly represents a huge step forward by the pension investing community and it has been quite a gradual reallocation away from domestic equity and bond markets. Back in the middle of the US market's largest bull run in its history, most pension funds had more allocated to Vodafone than North America, the largest equity market in the world. This led to weak returns relative to those achieved by unit trusts or Oeics exposed to that region. In looking at TrustNet's online pension statistics, North American portfolios provided in pension wrappers by the likes of Winterthur and Skandia were among the top 10 performers over both three and five-year investment periods. Anyone invested directly in Skandia's offering of Fidelity American would have achieved more than 300% returns over the past five years, instead of the low double-digit figures achieved by the average balanced pooled pension funds, which had largely avoided that market over that time period.
Over the past year, for instance, the best performing markets to have been exposed to as a pension fund investor would have been the high-risk emerging markets area ' with portfolios invested in Eastern Europe, China and Asia achieving the highest returns. The returns in the mid-teens are not as startling as the Fidelity American five-year numbers but in a year of negative UK and US returns, the emerging market funds look like the right decision.
The active management behind the J Rothschild GAM Balanced Pension Fund saw it capitalise on the positive returns seen overseas. According to the Caps survey, it achieved the best results in its peer group over the past year due to its 52.5% weighting in overseas markets.
At a time when active fund managers are proclaiming their worth and advertising their stockpicking abilities, now is the time to be seeking out pension fund managers who truly do provide such a service, not just those that continue to hug their respective benchmarks. The difficult markets are the ones where people are going to need the skills of the managers they are paying for ' if pension fund managers do not continue to look away from the benchmarks and add value, the only beneficiaries will be the less expensive passive fund industry.
Joined as head of strategy, multi asset, in June
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