Pensions asset allocation presents management challenge
Uncertainty in recent years has turned traditional thinking upside-down, says Bob Campion
Asset allocation for pensions has become challenging for even experienced planners and tinkering could make the issue worse, according to a pensions expert.
Writing in Money Management’s May pensions spotlight, Bob Campion argues that fund selection is coming up against greater problems than before due to unusual performance activity.
“Equities have been unusually volatile and disappointing while bonds, broadly, have performed well,” he says.
“Other traditionally held assumptions, such as that emerging markets deliver higher but more volatile returns than those from developed markets, have not been borne out either.”
According to Mr Campion, despite the temptation to offset clients’ potential losses by managing the pension more actively, it may be better to set an asset allocation at outset – accepting that it may need to be reviewed and that its assumptions may not bear out – rather than risk harming performance further.
“More likely than not, knee-jerk reactions to the latest swings in equities, bonds and other asset classes are more likely to harm your client’s long-term performance than improve it,” he says.
“Remember that anything you know, the rest of the world knows too. You cannot hope to make tactical calls unless you are fully briefed with all available information and even then it is a tough task.”
However, realigning during period reviews to get the portfolio back to where it should be is sensible, he adds, with substantial changes to asset allocation needed only if the outlook for a particular class changes significantly.