Default funds’ actual exposure to UK assets is a third of their stated allocation, with the average fund’s exposure to domestic assets just 13.6 per cent of their portfolio, new research has found.
A report from Old Mutual Asset Management has found that based on country exposure by listing, default funds have an average stated allocation of 41 per cent towards UK companies, but based on economic exposure analysis, focusing on where revenues are accrued, default funds’ actual exposure to the UK economy is only 13.6 per cent.
Conversely, exposure to emerging markets is far higher than revealed by exposure by listing. Based on exposure by listing, exposure to emerging market companies is 6.1 per cent, while genuine exposure to emerging market economies is 22.9 per cent, almost double the exposure to the UK.
Based on exposure by listing, exposure to North American companies is 19.5 per cent whereas economic exposure to the North American economy is 25.1 per cent.
Economic exposure to Japan’s economy is 16.6, compared to 7.5 per cent based on exposure by listing.
OM Asset Management head of international business Olivier Lebleu says: “Default plan design is mostly built around asset allocation models that seek to diversify risk based on funds with a stated geographic exposure. That is perfectly understandable but it does beg the question of whether the diversification that is being sought is being achieved, given the very different economic exposures embedded in supposedly ‘pure play’ regional or single country funds? ”