Schroders announces its latest FTSE DC report with investment diversification at a three-year high
Over the past three years Schroders has been tracking the default defined contribution (DC) investment strategies of the UK’s top 350 listed companies every six months to monitor change in asset allocation. Today, we announce our 7th FTSE Defined Contribution Report which has found that asset allocation is at an all time high [i], despite the significant changes experienced by the pensions industry.
Interestingly, FTSE 100 and FTSE 250 firms have not been following the same pattern of diversification. FTSE 250 companies give roughly twice the weight to fixed income option than their FTSE 100 counterparts and they have significantly increased weighting to this class in the last six months. By comparison, FTSE 100 firms allocate a greater weighting to alternatives.
Stephen Bowles, Head of UK Institutional Defined Contribution, commented:
“We are excited to see that diversification is getting through and firms are making steady progress towards more diversified investment strategies, which we believe will help deliver better outcomes for members.
“The pensions and DC landscape have faced significant change over the past three years with the review of pension tax relief, the introduction of auto-enrolment and pension freedoms, pension scheme managers have more considerations when selecting asset allocation than ever before.
“However alongside all of this has of course been a challenging investment environment, weaker global economics, low inflation and low interest rates affecting fund design. Despite the challenges faced, we are pleased to see that the underlying trend of diversification continues, reaching a three-year high since our inaugural analysis.”
As the table below shows, as of this month [ii] the average FTSE 350 DC default fund invested just under 67% of its total assets in developed equities - with this proportion breaking down to an average of 25% of assets allocated to UK equities and 41% to global equities (see table below).
Source: Schroders FTSE Default DC Schemes Report, May 2016