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FTSE DC schemes overly invest in equities
24 October 2013
Survey shows static allocations and lack of diversity, finds Schroders
A study of the defined contribution (DC) scheme investment allocations of the UK's FTSE 350 companies has found a lack of diversification and an over-reliance on equities, according to Schroders.
The investment manager found that the vast majority of companies (85%) in the survey had not made significant changes to their asset allocations in the past 12 months. Schroders found that of the 15% of funds that had made significant investment decisions, few had diversified.
Overall, Schroders found that while the typical FTSE 350 firm's DC scheme had decreased its allocation to UK equities slightly, with a reduction of nearly 2%, to 31%, they still had an 84% allocation to equities overall.
Scheme allocations to global equities rose by 2% to 48%, while fixed income fell to 8% from 9.2% and alternative allocations remained static at 8%.
Stephen Bowles, head of defined contribution at Schroders, said: “Our FTSE DC research clearly illustrates that whilst some schemes certainly employ elements of diversification, few do so effectively.
"Instead the overwhelming majority of schemes continue to implement an approach that is highly equity dependent. It has been disappointing to see that there has been no change in the allocation to alternatives over the past 12 months, a rather underutilised asset class.”
The survey also found that FTSE 100 companies had made only slight changes to allocations in the past 12 months, with the largest reallocation being to increase emerging markets holdings by 2% to 5%. Schroders said that in contrast, FTSE 250 schemes have made greater alterations, with a 5% cut in UK equities, to 36%, and 4% rise in global equities to 48%.
Bowles added: “What is perhaps most interesting is that it is only in cases where a scheme has either replaced or appointed additional fund managers that progressive changes have been made to diversify – this represents 12% of all schemes.
“This is particularly significant as through their differing investment strategies, multiple managers add an additional element of diversity alongside allocations. It will be interesting to see if this is a trend that continues to develop in the months ahead.”
The survey examined the DC funds of 16 FTSE 100 and 9 FTSE 250 companies – or around 7% of the FTSE 350 universe.