State Street Corp. subsidiary, the WM Company, which conducted the research, attributes the precipitous decline on weak equity markets. Last year, the typical United Kingdom equity fund was down 22.5%, and international equity portfolios turned in a very similar 24% negative return, according to a report by IPE.com.
Despite the poor return in the equity markets, pension funds in the UK appear to be positioning themselves to accept the inherent volatility in order to “secure additional long term return,” the research found. Offered as evidence of this proposition is the net positive investment by funds into equities in 2002, particularly into international equities, and predominantly US equities, with the majority of those purchases coming from existing liquidity and bond sales. This movement brought equity exposure for the average UK pension fund at the end of the year to 65%.
On a positive note, b oth UK government bonds and UK corporate bonds were up approximately 9.6%, followed closely with overseas bonds’ 9.3% return. Other winners in 2002 included index-lined bonds returning 8.7% and, property funds up 9.1%. Over the past the three-years, property has returned almost 9% annually and 11% per year over the previous ten, making it the leading asset class during that period.