A growing number of segregated pension funds are using index tracking for UK equities, according to ...
A growing number of segregated pension funds are using index tracking for UK equities, according to the latest CAPS pension fund review.
By the end of 1999 around 22-23% of all segregated pensions money invested in UK equities was in tracking funds compared to 20% at the end of 1998.
Alan Wilcock, research and development director at CAPS, said: "It is not quite relentless but it has continued and they are doing it predominantly in the UK." This has also led to an increase in the number of active satellite managers being used by schemes and a decrease in the use of balanced with-property discretionary funds.
Wilcock said: "A lot of schemes are setting up fixed income portfolios and passive portfolios. There is also a lot of activity setting up specialist active UK equity accounts." These accounts were given to satellite managers while index funds was increasingly the core UK investment.
The CAPS research found there were a growing number of funds making changes to their portfolios. Changes were defined as adding or removing asset classes or changing investment managers. The calculation excluded changes to the benchmark. CAPS worked out the level of fund activity by dividing the number of portfolios with changes against the total number of portfolios. Fund activity in 1999 was 16% compared to 14% in 1997 and 1998 which translated to one in six funds making changes compared to one in seven funds previously. Another change was the move towards bespoke benchmarks with the number of funds using them rising to 45% in 1999 compared to 40% in 1998, 25% in 1995 and just 4% in 1990. The median return for the CAPS universe was 20.6% while the upper quartile of funds returned an average of 23.3% and the lower quartile reported 17.7% returns. The weighted average returned was 19.9%. Wilcock said: "The indications are that larger funds didn't perform generally as well as the smaller funds. The main reason for that is that larger funds typically have more invested in fixed income assets which didn't do as well last year."
The UK equity market returned 24.2% and European equities returned 19.6% in sterling terms. The Japanese market was the best performer, returning 77.5% in sterling terms, followed by the 71.8% return from emerging markets and Far East ex-Japan returning 44.6%. On the fixed interest side, investments in UK bonds dropped 0.9% while overseas bonds fell 2.1%. Most of the returns came in the fourth quarter of 1999, some 13.7%, on the back of the surge in technology, media and telecommunications stocks around the world. The first quarter returned 5.6% while investments returned 3.4% in the second quarter and -3% in the third quarter.
CAPS reports on more than half of the segregated pensions funds in the UK, covering 1703 funds with assets worth £411bn.
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