Balanced pooled funds achieved a median return of 5.3% in the fourth quarter of 2005 and the average return for balanced funds for the year stood at 21.6%, up from 2004’s performance of 10.2%, according to Mellon Analytical Solution’s pooled pension funds update.
“Since the end of the equity bear market in early 2003, balanced pooled funds have been fighting their way back,” said Daniel Hall, Mellon Analytical Solutions’ publications and statistics manager. “Strong equity performance throughout 2005 has meant that these funds have now finally got ahead of their position at the start of the decade. The median return over six years from the start of 2000 to the end of December 2005 was 2% p.a.”
Positive returns were achieved in each of the major asset classes over 2005. UK equities, the single biggest asset class for UK pension fund investment, ended with a market return of 22%, while overseas equities returned 25% overall.
Property achieved the only other double-digit performance, at 19.2% for the year. UK index-linked gilts (9%) and UK bonds (7.9%) outperformed the cash return of 4.6%, while overseas bonds (4.3%) struggled by comparison.
Within overseas equities, emerging markets (49.9%), Japan (39.6%) and Pacific ex Japan (28.6%) provided the best market returns, while European ex UK equities received 23.6%.North American equities also achieved double-digit returns of 20%, boosted by the rise of the dollar against sterling over the year. By contrast the Euro fell against the pound reducing returns.
The total equity weighting within balanced pooled funds rose by 2.3% over 2005 from 83.1% to 85.4%. However, the relative weightings of UK to overseas continued to change, as balanced managers moved money out of UK equities and into overseas equities.
This relative shift from UK to overseas in balanced pooled funds reflects a long established trend that has been seen within UK pension funds as a whole. Ten years ago the ratio of UK to overseas equities within balanced pooled funds, stood at 70% to 30%, whereas today this stands at 57% to 43%.
The main overseas sectors to benefit from the shift in 2005 were Japanese equities where allocation rose from 5.1% to 7.2% and North American equities which rose from 7.4% to 8.4%.