(January 23, 2014) — UK equities, small caps, and medium-sized listed companies led the way for pension funds and charities to record double digit returns in 2013.
Data from State Street, which compiled information from 200 pension funds with a combined asset value of £500 billion and 240 charities holding £9 billion in assets, showed a strong year for risk assets led to a 11% average return for pension funds and a 15% average return for charities.
Equity markets hit near record highs in May, before progress was briefly halted by a slowdown in the Chinese economy and talk of unwinding of the US Fed’s asset buying programme. The third and fourth quarter equity returns were strong again, however.
The data also found that UK equities, strategically important and the largest single component of the majority of UK institutional funds, gained 22% over the year. In addition, small and mid-cap issues outperformed the mega-cap stocks.
But it was North American equities which led the pack, returning 30% for the year. By comparison, emerging markets lagged significantly, returning just 1% on aggregate.
“This latest year of positive results brings the five year performance for pension funds to around 10% per annum and the 10-year to 8% per annum, comfortably exceeding most actuaries’ assumptions for asset growth,” said Jeanette Patrizio, senior vice president of State Street Investment Analytics.
Despite the strong returns, pension funds and charities continued to sell off equities and buy bonds at a macro level.
State Street noted this was likely to be because the institutions sought to preserve allocations in line with asset strategies, as opposed to actively de-risking.
Exposure to alternative assets remained broadly static at around 10% of the average pension fund but the mix has begun to change with infrastructure and diversified growth products gaining traction.
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