No consensus from pension fund managers over future of investments

Global fund managers are more divided than ever on which asset class will perform best over the next 12 months according to a survey by Hewitt Associates.

Research carried out at Hewitt’s year end conference showed that almost 38 per cent of fund managers who attended believe corporate bonds will be the most profitable asset class in 2009. In contrast, global equities were viewed by 33 per cent as the better investment choice in 2009. 5 per cent of respondents thought cash would outperform other asset classes.

Hewitt says these differing views among investment professionals are likely to represent more potential for confusion among trustees seeking to make changes to their asset allocation.

The poll of more than 100 pension fund managers took place at Hewitt’s most recent fund manager seminar where fund managers were polled for their views on the current investment climate and the implications for UK pension funds.

Andrew Tunningley, head of investment consulting for Hewitt in the UK, says: “These results show that fund managers have sharply conflicting views on how the current downturn will play out. The dislocation in financial markets has raised many questions for trustees pursuing diversified investment strategies, not least around the need for greater flexibility in asset allocation. More than ever before, real world experience, depth of market and client insight and conviction will be the difference between those who sink or swim.

“Recent investment in corporate bonds was largely driven by pension funds’ efforts to de-risk their scheme assets. Those who reduced equity allocations saw funding levels improve more than those who didn’t – but caution is advisable. Risk mitigation and return expectation are not necessarily two sides of the same coin. While liability driven investment is likely to continue to be a driving force in schemes’ investment choices in the coming year, trustees should recognise that LDI strategies can produce very divergent returns, depending on risk definitions, while the timing of implementation is key.

“Despite record losses across the globe last year, it is notable that a third of fund managers believe that global equities will be a good asset in 2009. This is about half the number that felt global equities would be the place to be in 2008. The overall trend for diversification of UK schemes, from the UK stock market to a more global view is also worthy of note. If investing in equities, global equities represent the greatest opportunity set and can be another way to diversify some of the risks posed by being concentrated in one market.”