group diverts capital to cash in £36bn with-profits fund because of uncertain short-term outlook and concerns about corporate profits
Standard Life has decreased its equity holdings within its £36bn with-profits fund to just 57%, diverting most of the capital to cash holdings.
The cash allocation within the with-profits fund has now risen to 15% or around £5.4bn at the start of July this year. The mutual cited an uncertain short-term outlook for equities and worries over the robustness of corporate profits as the reasons for the move.
Its latest report shows the equity holdings as at 1 October as 41.7% in UK equities and 5.1% in European equities. It has 2.6% in the Pacific Basin, 2.3% in US equities and 1.5% in Japanese equities. Non-equity investments are reported as 15% cash, 14.5% in property and 13.4% in fixed interest. The remaining 3.9%, Standard Life said, is in other overseas equities and unquoted securities.
This asset mix is radically different from the mutual's position last year or even earlier this year.
As of 28 September last year the fund held a 75.4% weighting in equities ' this had reduced to 73.1% by the start of July this year. Positions in all equity sectors barring Pacific basin equities were trimmed between September last year and 1 July this year. Slight increases were made to property, fixed interest and cash positions in this period.
Bob King, group actuarial director at Standard Life, said the fund moved to cash rather than the bond or property markets as it is a more liquid asset. He said: 'Cash gives us more flexibility, property is slow and difficult to get into and out of and some bond markets can be pretty deep.' He added that the policy of Standard Life was for its with-profits fund to have a higher equity content than its competitors and even after these shifts the 57% equity holding was still one of the highest in the market.
'Holding an extreme position either means you are going to have top quartile or bottom quartile performance. A with-profits investor doesn't want that. Certainly our long-term intention is to have our investors in equities and with a greater exposure than our competitors,' he said
Standard Life said it had believed that corporate earnings would recover in 2002 following the falls experienced in 2001 and had had a more bullish forecast on growth prospects in the US and the UK than usual.
This had led it to maintain a high equity holding in the with-profits fund, which, it said, had returned good performance for the first quarter of this year.
However it continued that the 'short term outlook for equities has been increasingly uncertain in response to investor concerns over Iraq and the robustness of corporate profits.' It stated it had increased its cash weighting since June in response to this short term uncertainty but added it still believed equities and property would outperform fixed interest and cash in the long term.
Financial stocks featured prominently in the latest top 10 holdings in the fund, taking four of the top 10 places. Unsurprisingly the fund is made up primarily of large cap UK stocks. The largest holding in the fund was BP, followed by GlaxoSmithKline, Vodafone, HSBC and Royal Bank of Scotland.
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