There may be some individual corporate bonds, for instance, but it’s a minority. In equities we will go for indices but trying to find indices that work for what we are trying to achieve can sometimes be a little bit tricky.
PI: Where have you allocated your equity portfolio? Booth: We don’t like taking positions. If you tried to call the market two to five years ago you would probably have called it wrong. So our equity allocations are typically around a third UK, a third US, a third Europe and we might put some in the Far East.
PI: So how do you hedge currency risk? Booth: We hedge currencies, but we use quite a lot of futures. So we have currency hedging built in. Scott: From the DB side, we were talking less about equities full-stop. As the time horizons get pulled in schemes are investing less in the growth assets. Drewienkiewicz: Equities are down to under 20% in a typical UK DB scheme. Almost everyone is global. Someone said to me it had been two years since they saw a big consultant search for a UK equity man- date. We did one at the end of last year but there hasn’t been a huge amount of activity in domestic equities.
Bart-Williams: The name of the game over the last maybe 10 to 15 years has been diversification. Out of listed equities and into other asset classes, for example private equities or infrastructure debt. The equity allocations that we see now are typically much lower compared to 10 years ago. If you look at the diversified strategy compared to equities you can have broadly the same expected return when you allow for diversification bonus, etc, but maybe two thirds of the risk, and as a trade from a risk-efficient return perspective, that makes sense to a lot of investors. You would probably find more diversified strategies than you would find equities these days.
20 April 2019 portfolio institutional roundtable: Managing volatility
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