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The Actuary The magazine of the Institute & Faculty of Actuaries

Pension funds ‘diversifying assets to protect against volatility’

UK pension professionals are increasingly seeking greater diversification of assets to protect against the impact of market volatility on schemes, according to Baring Asset Management.

Spreadsheet ISTOCK
Photo: iSTOCK

The results of a survey of UK pension schemes published today by the company reveal that the number of respondents who cited greater asset diversification as a key tactic for navigating market volatility has increased from 47.6% to 63.8% over the past six months.

Reviewing a scheme’s investment portfolio more regularly is also becoming an increasingly popular way of mitigating the worst effects of market volatility. More than half (51.1%) of those surveyed said they had taken this step, compared to 42.9% six months earlier.

Barings also found an increasing number of those surveyed – 34% compared to 26.2% in the previous survey – were shifting asset allocations to multi-asset products.

Support for multi-asset strategies was further shown by over two-thirds of respondents (68.8%) having invested in targeted return or diversified growth strategies.

The research also found that almost two-thirds of respondents (64.6%) had recently changed the allocation of their fund. In 50% of cases, this change had been made to reduce volatility.

Andrew Benton, head of UK and international institutional salesat Barings said: ‘This research shows that UK pension funds continue to be concerned with the need to manage volatility and diversify assets in order to protect against significant losses.’

The vast majority (87.5%) of pensions professionals identified European debt concerns as a challenge to investment growth over the next six months, with rising tensions in the Middle East (47.9%) and the prospect of a second banking crisis (41.7%) also seen as worries.

While ‘emerging Asia’ was seen as the region offering the biggest potential for equity gains in the next ten years, the survey found increasing support for the ‘frontier’ group of emerging markets having the greatest potential going forward. Between 25 and 40 countries such as Nigeria and Argentina have been dubbed ‘frontier markets’ for having lower market capitalisation and more liquidity than other emerging economies.

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