The vast majority of the assets in the default funds used by the UK's leading companies defined contribution pension schemes are invested in equities, according to research published by Schroders yesterday.
The asset management company's study found that 79% of the average asset allocation of the funds surveyed was in equities. Its research included the DC default funds of 16 FTSE 100 and nine FTSE 250 companies.
Almost half (46%) of this was invested in global equities - including stocks and shares on the European markets - while UK equities accounted for 33%. Just 2.9% on average was invested in emerging markets.
Stephen Bowles, head of DC at Schroders, said the research had shown that, while there was a wide divergence among default DC schemes' asset allocation, many employees of the UK's largest companies had no exposure to a wide range of alternative asset classes.
'Surprisingly the average DC default strategy of a FTSE 100 or a FTSE 250 company today appears not to have diversified away substantially from pure equity exposure,' he said. 'This indicates that trustees have hugely different opinions as to how they believe their investment strategies can best be achieved.
'Alternatives account for just 11% of an average portfolio and therefore this does throw into doubt the widespread belief that diversification is already the "new normal" in DC.'
Among the FTSE 100 default schemes surveyed, the majority of assets were held in three key classes - global equities (47%), domestic equities (27.5%) and fixed income, such as bonds (10%). The remainder was split between cash, property, hedge funds, commodities and other classes.
FTSE 250 firms included in the research had, on average, 45% of their assets invested in global equities, with 41% invested in UK equities and 7% in fixed income. Other alternative assets accounted for just 7% of their portfolios.
