Pension funds should also be wary of their currency exposure, particularly when hedging to Sterling, warns J.P. Morgan Asset Management.

Currency analysis by the group shows that Euro and Sterling are amongst the least favoured currencies in their developed market investment process, which is attributed to weak investor flows, unattractive interest rates and poor yield momentum.

"Many UK pension plans hedge at least 50 per cent of their investment returns back to Sterling," explained Peter Ball, head of UK institutional business at J.P. Morgan Asset Management. "Whilst many plans implemented hedging for risk control purposes, the current weakness of the pound will be having a significant impact on their portfolios.

"Currency exposure should not be a reactive strategy in times of market turbulence, but with emerging market and other developed country currencies faring much better than the Euro or Sterling, pension plans should look to take on a more dynamic approach to their currency exposure."

In the longer-term, the group predicts that there will continue to be sovereign risk concerns in Europe that will weigh on these currencies, although given the extent of the relative price adjustment over recent months (Euro) and the last few years (Sterling), the valuation of these currencies looks more interesting, the group said.

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