UK – The new head of equities at HSBC Asset Management reckons that pension funds’ shift to bonds has peaked – and that pension deficits will be a drag on stock market performance.
Chris Rodgers, who joined from Schroders recently, said the trend for pension funds to shift away from equities and into bonds has “peaked”.
“Pension funds will continue to move money on a strategic basis from equities to bonds,” he said. “I think the need to address deficits is a very real one, the need to de-risk funds is a very real one.”
“There’s no doubt that pension funds will continue to rebalance more towards bonds, but the rate at which that’s happening is not getting any worse and I think the panic phase is probably over.”
And he sees the continuing pension deficits hitting markets. “The equity market rise will be dampened by the fact that there is this continual technical drag.”
“If anything it keeps the market cheaper than it otherwise would be. But it won’t necessarily stop it rising if the fundamentals are on an improving trend.”
Rodgers says equities’ long-term returns still compare favourably to bonds, though it is “unrealistic” to expect equities to rise by 15% a year. He says equities’ long-term returns of seven to eight percent are still attractive.
“And it will beat bonds - I don’t doubt that from this point on equities will beat bonds. But bonds provide you with more of an assured return, there’s no doubt about it.”
He said investors should not compound any errors made in the past by moving into bonds now. “There’s as much of a bubble in the bond markets as there perhaps was in equities three years ago.”
He also sought more trust between managers and clients. “I would like to see less of a musical chairs of rotation of managers than perhaps has been the case in recent years.”
“There should be more of a willingness to trust the manager.”
“Especially in volatile markets, managers need to be judged over much longer time periods.” He said that, having appointed a fund manager, investment consultants should encourage clients to stick with them.
He suggested a three to five year assessment period, though that did not necessarily need to be written into contracts.
Rodgers heads a six-strong team at HSBC AM. He admits that HSBC has been “punching below its weight” in the asset management industry. It manages around 12 billion euros in European pension fund assets.
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