Scottish Widows is running a far higher bond weighting in its major mixed pooled pension fund than t...
Scottish Widows is running a far higher bond weighting in its major mixed pooled pension fund than the Hill Samuel equivalent.
The Hill Samuel Managed Global Pensions fund outranks its counterpart in terms of three-year rolling returns for the 1996-1999 period in the CAPS survey. Hill Samuel is 19 out of 62 funds measured with the end of March compared to the Scottish Widows Pensions Mixed Fund which is ranked 46.
Robin Garrow, investment director and global strategist at Scottish Widows, says the group is cautious about the global equity markets, particularly the US, and so has a higher fixed interest weighting.
The Scottish Widows Pensions Mixed Fund has around £3bn under management, of which 70.2% is in equities, 20.8% in bonds, 3.8% in cash and 5.2% in property.
In contrast, Hill Samuel has 77.9% of its portfolio in equities, 14.7% in bonds, 4.4% in cash and 3% in property.
Garrow says: "We are cautious about equity valuations of the US market; it looks overdone. The US economy will turn out to be more fragile than people expect."
The group is also concerned about US corporate profits in the longer term. Garrow says: "From here we don't see good returns on equity relative to bonds or cash. We think it is far better taking the returns offered by bonds."
The fixed interest investments are split with around 10.6% in overseas bonds, predominantly in the US, and 10.2% in the UK.
Hill Samuel's bond exposure is 10.5% in gilts and 4.2% overseas. At the moment the long-term US bonds are yielding around 6% compared with UK long-term gilts with yields of less than 5%.
Scottish Widows prefers to be in long duration Treasuries in the US and short to medium term gilts in the UK.
Garrow says: "We don't like the long end of gilt market. We are neutral on UK bonds. Most of the instruments we hold are short to medium term, that is around 8 to 10 years. The long end of the gilt market holds very little value."
In the equity sector, Scottish Widows has some 52% in UK equities compared with Hill Samuel's 57.1%. In US equities, Scottish Widows has 1.4% exposure while Hill Samuel holds 3.2%. The European holdings are 12% and 12.7% respectively.
Garrow says: "We still think Europe is at a different stage on the cycle and the European economy is going to take off over the second half of the year."
Low inflation, rising company profits and low interest rates should help the Europe market improve. However, if there were a correction in the US there would also be a drop off in the European one. In Europe, the group favours the cyclical and industrial end of the stock market.
Scottish Widows has 2.2% exposure in the fund to Japan, where it favours companies that are intending to restructure and have the management capability to do so. Hill Samuel had 2.4% in Japan and 1.5% in the rest of the Pacific region while Scottish Widows has 1.9%.
Garrow is not convinced by Asia's better performances and thinks the recovery was too swift and markets, particularly Hong Kong, remain vulnerable to another correction before sustained growth.
Scottish Widows is neutral in Japan. Garrow says: "We don't think the Japanese economy is going to come roaring out of the traps." He believes Japan's first quarter GDP growth, pegged at 7.9% on an annualised basis, is unlikely to be sustained.
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