UK - Balanced funds have recorded their worst performance figures since the third quarter of 1990 during the last three months with a median return of –12.6%, according to the CAPS pooled pension fund survey Q3 2001 results.

Quarter three in 1990 registered a median return of –15.2%.

While equities around the world fell substantially during the quarter, overseas equities underperformed UK Equities, with some of the emerging markets producing the poorest returns, says CAPS.

However, bond returns provided some respite and produced positive returns along with Cash and Property.

CAPS adds that the recent run of negative equity returns has started to be reflected in longer-term results.
Over the three years to 30 September 2001, the median balanced fund earned just 2.6% pa barely outstripping price inflation of around 2.2% pa.

Over the same period, UK and European equities returned 2.4% pa and 1.9% pa respectively. These were the lowest returns generated by all the sectors.

The best performing asset class over three years was property, at 10.6% pa.

For the five years ending on 30 September 2001, the median balanced fund return was 5.0% pa, just above wage inflation of around 4.5% pa.

Over the same period, UK equities (6.5% pa) and overseas equities (5.8% pa) were outperformed by UK gilts, conventional (9.0% pa) and index-linked (8.3% pa), and property (12.5% pa). In fact, the returns achieved on UK equities compared unfavourably even to cash (5.9% pa).

Over a longer five year, UK and Overseas Equity returns have been roughly half what they were in the five-year period ending on 30 September 1996. At the same time, the risk (measured by the standard deviation of returns) has nearly doubled. Risk on other asset classes – UK Bonds and Property – has declined, while their returns relative to equities look more attractive.

Consequently, average equity weightings in balanced funds fell on the back of poor relative returns. UK equity weightings fell from 53.1% to 52.1%, while overseas equities fell back from 27.5% to 25.3%.
North American equities was the only equity sector not to fall at 6.7%. The overall bond weighting increased from 12.4% to 14.3%

The CAPS Pooled Pension Fund Database covers 85 separate asset managers, who manage over £180 billion in pooled funds, both balanced and specialist.