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DC asset class diversification highest level in four years - Schroders

Written by Talya Misiri
19/05/17

Defined contribution asset class diversification was at its highest level in four years over the year to end of March 2017, Schroders has reported.

According to the Schroders 2017 FTSE DC report, diversification is at its highest level as pension funds have increasingly allocated away from developed equities and towards fixed income and alternative assets.

Asset class diversification continued to grow in the average default allocations of FTSE 350 DC pension schemes in the year.

Over the 12 month period, the average FTSE 350 pension’s exposure to developed equities, comprising of global and UK equities, fell from 67 per cent to 62 per cent. This reduced from a total average exposure to developed equities of 79 per cent in March 2013. Schroders highlighted that UK equities “experienced substantial allocation falls” from 33 per cent to 22 per cent over the past four years.

With this, FTSE 350 DC exposures to fixed income and alternative assets increased over the year, in line with the four-year trend. Average fixed income exposures rose from 16 per cent to 21 per cent, while over the last four years, average exposures to alternatives grew from seven per cent to 13 per cent.

Schroders head of UK institutional defined contribution Stephen Bowles said: “For the last
few years pensions have rarely been far from the government and regulator’s gaze. The roll-out of auto-enrolment, the introduction of the pension freedoms and a greater regulatory scrutiny of master trusts are just a handful of the changes and issues that have defined the UK landscape.

“But with another General Election just a few weeks away and the UK embarking on what is sure to be a highly complex and delicate set of negotiations regarding its future relationship with the European Union there could well be scope for pensions to slip down the list of priorities. This may not be a bad thing, giving much-needed time for the recent changes to bed in.

“What will remain challenging will be the investment environment as markets continue to operate in a period of heightened political uncertainty…We would urge pension funds to remain focused on the advantages that diversified portfolios do bring and not fall into any rear-view mirror investment traps.”

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