U.K. Pension Funds Cut Equity Allocations as Stocks Rally

Pension funds in the U.K. cut their allocations to stocks even as the benchmark FTSE 100 Index (UKX) rallied to the highest level in more than five years, according to data compiled by Mercer.

Managers of retirement assets reduced the amount they hold in equities to 39 percent from 43 percent over the past 12 months, according to a report today from the pension-consultant firm. Allocations were as high as 68 percent in 2003. U.K. funds now have smaller proportion of investments in shares than Ireland, Belgium and Sweden.

Pension funds are cutting equity holdings in favor of bonds even as central-bank stimulus helps push the FTSE 100 to the highest level since October 2007. Some 30 percent of respondents to the Mercer survey said they plan to reduce their allocations to domestic stocks further, with 24 percent intending to cut investments in overseas shares.

“Pension schemes across Europe, but particularly in the U.K., remain on a path towards a lower-risk investment strategy,” Nick Sykes, European director of consulting in Mercer’s Investments business, said in a statement today.

The survey covered more than 1,200 pension plans from 13 countries, with combined assets of more than 750 billion euros ($965 billion), according to Mercer, a unit of New York-based Marsh & McLennan Cos.

While pension funds are trimming equity investments, central banks are buying stocks in record amounts amid falling bond yields. In a survey of 60 central bankers last month by Central Banking Publications and Royal Bank of Scotland Group Plc, 23 percent said they own shares or plan to buy them.

The Bank of Japan, holder of the second-biggest reserves, said April 4 it will increase investments in equity exchange-traded funds more than twofold to 3.5 trillion yen ($34.1 billion) by 2014. The Bank of Israel plans to almost double stock holdings to as much as 6 percent of foreign-exchange reserves, or about $4.5 billion, by the end of 2013.

To contact the reporter on this story: Andrew Rummer in London at arummer@bloomberg.net

To contact the editor responsible for this story: Chris Nagi at chrisnagi@bloomberg.net

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