Pooled balanced funds in the UK were up slightly in Q3, the sixth consecutive quarter in which they have returned a positive number.
The median return was 1.8%.
“Due to poor equity performance, pooled balanced funds lost around 30% of their asset value, on average, over the three years to 31 December 2002,” explains Daniel Hall, Russell/Mellon’s Publications and Statistics Manager. “Although they still have a long way to go to get back to their 1999 levels, continued positive performance means that these funds will have now regained over half of their lost asset value.”
UK equities achieved an index return of 2.9% this quarter, while overseas equities produced the only overall negative return of -0.5% over the quarter. Performance in individual overseas equity markets varied, however. Pacific ex Japan and emerging market equities were the top performers, with returns of 9.9% and 8.4% respectively. Europe ex UK equities returned 0.6%, while North American equities returned -1.2%. These returns were boosted by the fall of sterling against the dollar and the euro. Japanese equities provided the poorest index return of -7.6% in Q3 2004.
Property provided the best overall return of 3.9% this quarter, while UK bonds (2.9%), overseas bonds (3.6%) and index-linked gilts (2.7%) all made gains. Cash returned 1.1%.
UK smaller companies managers matched the FTSE Small Cap index over the quarter and outperformed over one, three, five and 10 years to 30 September 2004. Over 10 years the median return, after fees, was 9.5% p.a. compared with 6.4% p.a. for the index.
By contrast, active UK equity managers underperformed the FTSE All-Share index this quarter with a median return, after fees, of 2.3% against the index return of 2.9%. They also underperformed over the last 12 months with a median return of 14.3% against 15.7%. Over the medium-term however these funds continued to outperform. Over the last three years active UK equity managers returned 2.7% p.a. on average against 2.3% p.a. for the index, while over five years the median was -0.7% p.a. against -1.5% p.a. Over the last 10 years however, these funds showed an underperformance of 0.2% p.a. with a return of 7.3% p.a. against 7.5% p.a.
Within the UK equity market, the large cap stocks of the FTSE 100 index provided the best return of 3.4% over the quarter. Mid and small cap stocks both underperformed the All-Share index with returns of 0.8% and -0.5% respectively.
Utilities (10.9%) and resources (10.0%) provided the best economic sector performances of the quarter. Information technology was the poorest performer for the second consecutive quarter, with a return of -11.3%.
Higher yield (value) stocks outperformed lower yield (growth) stocks for the fifth consecutive quarter, in Q3, returning 5.4% against 0.3%. Value stocks were also significantly ahead over one, three and five years to 30 September 2004. Over five years the out performance was 13.4% p.a. as value stocks returned 4.5% p.a. against -8.9% p.a. for growth stocks.
Pooled balanced managers moved money out of UK equities, once again, during the quarter. Consequently, the average UK equity weighting fell from 52.0% to 51.3%, despite good relative performance. This was the lowest recorded weighting for this sector since our records began at the end of 1989.
Overseas equity weightings remained static overall at 31.1%, although there was some reallocation between individual sectors. Emerging markets saw the biggest rise over the quarter, from 2.0% to 2.3%. This was a result of good relative performance and manager movements into the sector. By contrast, weightings in Japanese equities fell from 5.3% to 5.0%. Here, poor performance more than offset manager movements into the sector. North American equity weightings saw a small decrease from 7.5% to 7.4%, while European ex UK equity weightings remained at 11.7%.
There was increased allocation to both UK and overseas Bonds, this quarter, as well as to Cash. Weightings in index-linked glts remained static, while property weightings fell by 0.1% to 0.9%.
The Pooled Pension Fund Database covers 77 separate asset managers who manage over 294 billion in pooled funds, both balanced and specialist.