Default defined contribution (DC) pension plans operated by FTSE 350 companies are still equity dependent but there is some ‘optimism’ that diversification is starting to occur.
Schroders, the FTSE 100 fund manager, produced its third FTSE DC report recently and finds that over 80% of fund allocations are to developed-world equities, but that allocations to alternatives have increased by 8%. Exposure to emerging markets have fallen.
This is the third DC report by Schroders since March 2013.
Stephen Bowles, head of DC at Schroders, says: “In fact, of the schemes that invest in alternatives, nearly a quarter now has an allocation of 15% or more. By comparison, a year ago this only applied to only a fifth.
“But we believe all these pension schemes that are not diversifying their assets are missing the valuable growth and low volatility benefits, which can be achieved through diversification opportunities.”
FTSE 100 firms have more diverse default DC schemes than their FTSE 250 counterparts, with total current developed equity allocations of 77% and 83% respectively. Similarly, allocation to alternatives by FTSE 100 firms stands at 9%, whereas FTSE 250 firms are at 7%.
Schroders also says there has been a reduction in the number of schemes that have an allocation to emerging markets. Today less than half (48%) of the default DC schemes of FTSE 350 companies have an allocation to emerging markets, compared to 55% a year ago.
The DC default funds of 17 FTSE 100 and 14 FTSE 250 companies were researched.
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