Balanced pooled funds achieved a median return of 6.2% in Q4 2004, leading to a double-digit performance for the second consecutive year.
Over 2004, the average return on Balanced funds was 10.2%. This followed a return of 18.0% in 2003. Looking at individual asset classes, UK Equities achieved an index return of 12.8% in 2004, while Overseas Equities returned 7.6% overall. UK Bonds (6.6%), Index-Linked Gilts (8.5%) and Overseas Bonds (2.4%) also made gains. Property provided the other notable return of 17.8% over the year, while Cash returned 4.3%, according to Russell/Mellon’s CAPS Pooled Pension Fund Update.
Daniel Hall, Russell/Mellon’s Publications and Statistics Manager said: “Following the poor performance at the start of the decade, those Balanced managers that kept faith with equities have been rewarded over the past two years. A typical Balanced pooled fund worth £100m at 31 December 1999 would have lost around £30m over the subsequent three years. Since the beginning of 2003 however, it would have regained around £21m of those assets, largely due to strong equity performance.”
Individual overseas equity markets saw varying degrees of success in 2004. Pacific ex Japan and Emerging Market Equities achieved the best returns of 20.0% and 17.1% respectively. European Equities also performed well, returning 13.4%.
North American and Japanese Equities struggled by comparison. While both sectors achieved double-digit returns locally, the weakening of the dollar and the yen against the pound over the year had a big impact on their sterling performance. As a result, North American Equities only returned 3.8% in sterling terms, while Japanese Equities returned 7.8%.
Active UK Equity managers underperformed the FTSE All-Share index in 2004 with a median return, after fees, of 12.2% against the index return of 12.8%. Over three years these funds matched the index of 1.8% p.a., while over five years they outperformed with a median return of -2.3% p.a. against the index’s -3.0% p.a. Over the last 10 years however, active UK Equity funds were 0.3% p.a. below the index, returning 7.8% p.a. against 8.1% p.a.
One of the factors affecting the relative performance is the level of cash held. When the UK market does well, the cash holding will effectively reduce the total return. The opposite occurs when the market performs poorly. UK Smaller Companies managers were more successful, beating the FTSE Small Cap index over one, three, five and 10 years to 31 December 2004. Over 10 years the median return, after fees, was 10.6% p.a. compared with 7.6% p.a. for the index.