UK Pensions Reverse 20-Year Equities Sell-Off

(August 6, 2013) — Pension funds attached to the largest listed companies in the UK upped their allocation to equities in 2012 for the first time in two decades, consulting and actuarial firm LCP has found.

In the 20th edition of its annual “Accounting for Pensions” survey, LCP said companies listed on the FTSE 100 had more equities in their portfolios than a year earlier for the first time since it began publishing.

“In recent years we have seen a continued shift of pension scheme assets out of equities and into bonds as pension scheme trustees look to remove risk and invest in assets that more closely match changes in liability values,” LCP said. “However, during 2012 we saw a cessation of the trend as the proportion of assets that schemes held in equities increased.”

One of the largest moves was by chemicals firm Croda, which saw its pension scheme increasing its allocation to equities by 9%.

However, before equities managers get excited, this reversal may be short-lived, LCP said, acknowledging it may have been partially attributable to market movements during the year as equities outperformed bonds.

There were plenty of pensions that continued to de-risk and move away from volatile stock markets.

Packaging producer Bunzl reduced its pension schemes’ allocation to equities by 10% and engineering firm Meggitt moved 16% from equities to bonds.

LCP said spike in equities allocation may have been a temporary blip, a view that was echoed by the UK’s Investment Management Association (IMA), which published its annual review of the industry today.

The IMA said its members clearly expect “the diversification away from high allocations to equities historically to continue, alongside an emphasis on more solution-based products. This is generally seen as likely to be more of a permanent than a purely cyclical phenomenon”.

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