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Wednesday 16 November 2011

Are equities the forgotten asset class for pension schemes?

If you could buy an instrument that delivered inflation busting income growth for more than 25 years and offered substantial real capital growth why wouldn't you have that as your core pension asset?

There are several super blue chips, including the likes of Tesco, Glaxo, Vodafone, Shell, etc that have delivered excellent growing income over the years and currently yield more than Gilts so why do pension schemes have less equities and more low yielding bonds these days?

Does the answer lie with short term-ism caused by marking to market and the way actuarial valuations start from the Gilt yield as the proxy for a risk free rate of return?

Are trustees too obsessed with following the herd and missing the elephant in the room? Are actuaries and investment consultants running scared that short term volatility could make them look foolish? Is the Pension Protection Fund levy to blame for now punishing higher risk investment strategies? Once again the pensions of millions are at risk from good intentions that have had unexpected consequences.

There seems to be a trend for emulating equity style returns through diversification whilst reducing volatility, which is the holy grail, but with high growing income available from many blue chips with sound balance sheets, is it time for a re-rating of the good old company share?

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