Nest weathers FTSE slump

Nest weathers FTSE slump

Diversification in Nest’s default funds seems to have paid off, as the government-backed workplace pension scheme has dodged the worst of the big falls in equity markets this year.

While the FTSE 100 has fallen by 34.3 per cent this year, Nest's default growth phase fund has seen a drop of 17.6 per cent as at March 24, in keeping with typical multi-asset funds. But its other main funds have registered smaller decreases. 

Its default foundation phase fund, for younger members, declined by 13.3 per cent, while the default consolidation phase, for individuals retiring this year, dropped 0.6 per cent.

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Equity markets have been reacting to the Covid-19 outbreak, which was labelled a pandemic by the World Health Organization at the start of March as more than 100 countries registered cases.

Nest stated that due to its diversification strategy, most of its members’ pots “will not be experiencing the extreme stock market volatility that has been reported in the news”.

Mark Fawcett, chief investment officer at Nest, said: “Pension saving is a long game – people can be saving for up to 40 or even 50 years – so while we’re keeping a close eye on current events, our focus is the long term.

“At Nest, we’ve prepared for situations like this by diversifying our default funds so they are not overly reliant on any one asset class.

“We’re in a good position to be able to increase our equity allocation while markets are down, and therefore help our members benefit when markets begin recovering.”

Markets have been volatile over the past few months as the coronavirus has caused countries to close borders, shut down businesses and cancel all non-essential travel.

The spreading pandemic has caused the FTSE 100 to see some of its biggest ever daily dives - and rises -while the S&P 500 has lost 30 per cent since the start of the year in dollar terms.

But following the UK’s announcement of a lockdown and stimulus plans in the US, the FTSE 100 closed up 9 per cent on March 24.

Last week, FTAdviser showed that clients invested in a typical balanced portfolio have seen more than 10 per cent knocked from their pension pot over the past few weeks. 

The IA Mixed Investment 20-60% Shares sector, home to many multi-asset funds, has dropped about 12 per cent since February 17.

One adviser described the coronavirus situation as “catastrophic” for anyone who was looking to retire having invested “sensibly in accordance with their needs” up until a matter of weeks ago.    

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