Statistics published today by Mellon Analytical Solutions (MAS) show that balanced pooled funds achieved a positive return for the third consecutive quarter, with a median return of 2.3%. The median return on these funds over the 12 months to 31 March 2007 was 6.0%, a real return of 1.2% against retail price inflation.
During Q1 2007, UK Equity managers returned 2.8%, underperforming the FTSE All Share index by 0.1%, net of fees. However, this underperformance was more significant over the longer term, with UK Equity managers underperforming by 0.9% over the last 12 months and by 0.8% p.a. over three years. The median return over 10 years to 31 March 2007 was 7.2% p.a. against 7.7% p.a. for the FTSE All-Share index, representing an underperformance of 0.5% p.a.
By comparison, UK Smaller Companies managers achieved an outperformance of 1.5% over the quarter and were even more successful over the long term, outperforming the FTSE Small Cap index by 3.3% p.a. over the last 10 years.
European ex UK (4.2%) and Emerging Market Equity (2.3%) pooled fund managers also outperformed their respective indices in Q1 2007, as did UK Bond managers (-0.5%).
Major equity markets provide positive returns
UK Equities returned 2.9% in Q1 2007. Positive index returns were also achieved in each of the major overseas equity markets, with Pacific ex Japan and European Equities providing the best returns of 7.0% and 4.1% respectively. North American Equities underperformed comparatively, but still returned 0.8%.
Property provided the best non equity asset class return of 2.7% over the quarter, while positive returns were also achieved in Cash (1.3%) and Overseas Bonds (1.1%). UK Bonds and UK Index-Linked Gilts struggled in comparison, producing the only negative returns of -0.7% and -0.5% respectively.
Balanced funds attain highest ever weighting in overseas equities
Although Balanced managers moved money out of UK Equities during Q1 2007, weightings remained static at 47.0% as movements were offset by positive relative performance. By comparison weightings in Overseas Equities increased by 1.3% to 37.6% over the quarter. This represents a new quarter-end high since MAS’ records began at the end of 1989.
The main contributor to this increase in overseas equity weightings was European Equities, which rose by 0.9% over the quarter. This increase was a result of manager movements into the sector coupled with positive relative performance, and saw weightings boosted to an all time high of 14.6%.
Weightings in Japanese and Pacific ex Japan Equities also increased over the quarter as managers moved money into these sectors. By contrast, weightings in North American Equities decreased due to a combination of manager movements and poor relative performance.
Both UK and Overseas Bonds saw decreases over Q1 2007 of 0.3%, while weightings in Index-Linked Gilts, Cash and Property remained fairly static.
Commenting on the results, Daniel Hall, Mellon Analytical Solutions’ Publications and Statistics Manager said: “Following on from their double-digit performance in 2006, balanced pooled fund managers have continued to gain ground in 2007, with another positive quarterly return.”
Mellon Analytical Solutions is the performance and analytics arm of Mellon Financial Corporation. CAPS Pooled Pension Fund Update is a Mellon Analytical Solutions service. The Pooled Pension Fund Database covers the largest and most representative sample available to UK pension funds’ trustees. Mellon Analytical Solutions currently covers 76 separate asset managers who manage over £431 billion in pooled funds, both balanced and specialist.