GROUP PREDICTS STRONGER THAN EXPECTED RECOVERY IN 2002 AND IS RUNNING an UNDERWEIGHT CASH POSITION
Standard Life is overweight the UK, Europe and the US in its defined contribution Pension Managed fund in the belief that there will be a strong economic recovery next year.
Stephen Acheson, head of UK pensions at Standard Life, added that the £5.5bn fund is underweight Japan, with a 3.7% weighting and is also underweight bonds and cash which make up 12% and 5.1% of the portfolio respectively.
Acheson said: 'We have a pro-equity stance at the moment and what we see at the present time is that the favoured markets are the US, UK and Europe on the back of the fact that we think there will be a stronger than expected economic recovery next year and we believe the current pessimism has been overdone.
'There is undoubtedly very strong commitment on the part of central banks to provide enough, and one could argue excess, liquidity in the marketplace.'
The fund has around 7.8% in US equities as well as 12.2% in Pacific Basin stocks and 54.1% in UK equities.
Acheson also said fiscal policy in the US, for example, is also underpinning looser monetary policy especially in terms of tax cuts.
Acheson believes that, even if the economic recovery Standard Life expects next year does not fully materialise, this may not have an adverse impact on markets.
He said: 'The risks are that the economic recovery turns out to be not as good as we hoped it would be. We believe that is not as big a risk to markets as it is to the economy.
'If the excess liquidity that has been generated is not being mopped up by the economy, there will be more liquidity around, which is good for asset prices. If the economy does not pick up there will be increased stimulus by governments and the increased liquidity that is there at the moment will still be there.
'We believe there will be volatility and that there will be ups and downs in the marketplace but over the medium term we are reasonably positive.'
In the US, the UK and Europe, Acheson said Standard Life is favouring economically sensitive sectors such as construction and housebuilders and is also favouring consumer cyclicals. The group is keen on interest-rate sensitive stocks such as banks, but is less keen on defensive areas of the market.
Acheson said Standard Life is not negative on technology but is taking a selective approach to technology and telecom companies, looking for stocks where valuations are based on demonstrable profits rather than speculative growth expectations.
The fund is overweight in Pacific Basin equities, which make up around 3.5% of the portfolio, although Standard Life is less keen on Japan. The fund also has 1% in property.
Acheson pointed out that the Japanese government has less lee-way than the other key world economies in terms of economic stimulus packages as it has already been involved in large spending programmes and has been running a looser monetary policy for some time.
The DC Pension Managed fund's underweight cash position is due to the group's preference for equities and, while Standard Life is underweight bonds in the fund, it is not expecting bonds to collapse and does not see inflation becoming a problem.
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