equity holdings in with-profits funds down to close to 50% in response to volatile markets
The equity portion of with-profits funds has dropped from 70%-80% to around 50% as groups steadily decrease equity exposure.
Research carried out by Investment Week found the average equity exposure in the top 20 with-profits funds in the UK stood at just under 54% of total holdings.
Unsurprisingly, troubled Equitable Life has the lowest equity holding of the surveyed funds, with just 15% of its £17.6bn portfolio invested in equities at the start of July.
An Equitable Life spokesman confirmed the equity holding had dropped below 15% since July but would not give further details. Equitable did not disclose the other assets allocations within the fund.
The largest with-profits fund comes from the Aviva group (formerly CGNU) and stands at £48bn.
However, this figure actually encompasses three with-profits funds, the Norwich Union, Commercial Union and CGNU Life Assurance funds, that came from the individual companies merged to form Aviva.
Across the three funds, equity holdings stood at 49% at the end of June. This was down on the mix at the end of December 2001, when equity holdings represented 54% of the three funds. An additional 4% has been added to fixed interest and 1% was added to the fund's property exposure.
Prudential, one of the largest with-profits providers, has been steadily reducing its equity holdings in its £12bn fund year on year from 79% at the end of 1997 to just under 51% at the end of June this year. Correspondingly, investments in fixed interest have risen from 9% of the Prudential fund at the end of 1997 to 29.4% at the end of June.
Of the top 20 with-profits funds, seven have equities constituting less than 50% of the portfolio. Mark Dampier, head of research at Hargreaves Lansdown, said the most important question raised by the falling equity investments of the life assurers is whether this has happened as a result of investment decisions or for regulatory reasons.
He pointed out that a bear market where stock prices are very low should be an ideal time to move into the equity market for long-term investments such as pensions, which make up a significant proportion of the clients in with-profits. This, however, appears to be the opposite of what is happening.
'If the market falls further then, yes, fixed interest is going to do well against equities,' he noted. 'But by reducing equity exposure, you are reducing your long-term potential.'
Don Ramsay, appointed actuary at Scottish Mutual, whose equity mix stands at 39.8%, said the group did expect to return to a higher equity content 'at some stage', but the timing of this is 'uncertain'. He added: 'In the current volatile market conditions, the situation is under regular review.'
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