Over three quarters of asset allocation (79%) by FTSE 100 and FTSE 250 DC schemes has been to equities, Schroders has revealed in its research that set out to explore whether asset class diversification was the ‘new normal’ in practice.

For a typical portfolio, global (including European) equities had the highest allocation of all equity classes at 46%, compared to UK equities at 33% and emerging markets at just 2.9%.

Within FTSE 100 DC schemes the majority of assets were held in three asset classes: global equities (47%), UK equities (27.5%) and fixed income (10%). The remaining 15.5% was split between cash, property, hedge fund/absolute return, commodities and other asset classes.

FSTSE 250 schemes were even more heavily weighted towards global equities at 45%, followed by UK equities at 41%, fixed income at 7% and other alternatives also at 7%.

Schroders head of DC Stephen Bowles said: “This research is specifically looking at DC default funds in the accumulation stage. It has shown that there’s a wide divergence among default DC schemes in terms of asset allocation, however it is clear that many of the employees of the UK‘s largest employers have no exposure to a wide range of alternative asset classes.

“Surprisingly the average DC default strategy of a FTSE 100 or a FTSE 250 company today appears not to have diversified away substantially from pure equity exposure. This indicates that trustees have hugely different opinions as to how they believe their investment strategies can best be achieved. Alternatives account for just 11% of an average portfolio and therefore this does throw into doubt the widespread belief that diversification is already the ‘new normal’ in DC.”

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