The equity culture is not dead: Foster

The head of strategy at Brewin Dolphin said the shift from defined benefit to defined contribution pension schemes is boosting the appetite for equity investment.

This is because funds are trying harder to keep up returns at the same time as the inflationary monetary policies are squeezing money out of cash and gilts, causing people to look elsewhere for returns.

Mr Foster said that more pension funds money will go towards equities as they will offer a higher return over the longer period and seem to be lower risk than many bonds at the moment.

He said defined contribution schemes have seen their share in the pension assets increase by 5 per cent in the last decade, and have, on average, 10 per cent more holdings in equity funds than the average defined benefit schemes.

As £11 trillion worth of equities are funded by pensions already, the shift towards holding more shares and equity funds will have a sizeable positive effect on the equity market.

He said: “Macro-economic policies are also helping revive the equity culture. Zero interest rates and quantitative easing are herding money out of bank accounts and safer asset classes into equities.

“This may lead to greater corporate balance sheet efficiency, enabling replacement of expensive equity with cheap debt, which will make stocks even more attractive to investors.”

In addition, the lurching possibility of austerity going out of favour is another reason to be optimistic about the stock market, Mr Foster added.