DC schemes increase alternatives exposure

Large DC pension funds have increased their allocation to alternative assets, including real estate and commodities, while decreasing exposure to developed equities, according to Schroders’ latest FTSE DC report.

The report has found FTSE 100 companies surveyed have continued to increase their asset allocation from 8 per cent in March 2013 to 12 per cent in March 2015. FTSE 250 companies surveyed have also made increases from 5 per cent in March 2013 to 9 per cent in March 2015.

Exposure to developed equities across the board has decreased by 10 per cent over the past 24 months. FTSE 350 pension schemes’ allocation to developed assets has fallen from 79 per cent to 71 per cent over the period, now constituting 29 per cent UK Equities and 42 per cent global equities.

Within FTSE 100 schemes, allocation to UK equities has fallen over the last six months from 29 to 25 per cent, with total developed equity allocation down from 72 to 69 per cent.

The report shows a growing increase in fixed income asset allocation within FTSE 350 schemes over the last 12 months, up from 7 per cent to 14 per cent and in the past six months from 9 per cent to 14 per cent. Nearly a third – 29 per cent – of the schemes analysed have an allocation of at least 20 per cent to fixed income assets, a year ago this weighting only applied to 3 per cent of schemes.

Schroders head of UK institutional defined contribution Stephen Bowles says: “We welcome the growing trend of diversification which we have observed in this and our report in October last year.  Auto-enrolment has boosted pension scheme membership and over 5.2 million employees now have access to a company pension. This means an appropriate truly diversified defined contribution default strategy is more critical than ever before.”