September 2012_isue_16
Home is where the heart is, as the old saying goes, and this chart shows the adage is as true now as it ever was. The data, taken from Mercer’s European Institutional Asset Allocation Survey 2012, provides a breakdown of strategic allocations across the continent and shows the domestic bias remains prevalent. Perhaps this is to be expected, given the liability- focused role bonds generally play in pension plan portfolios. Within bond portfolios, the UK and Irish markets display significantly higher allocations than other European countries do to inflation-linked government bonds. This largely reflects the nature of the pensions promise of UK and Irish schemes along with the desire to better match their liabilities. The domestic/non-domestic split varies quite considerably in equity allocations, where a greater emphasis is placed on diversification. As seen above, the domestic allocation now represents less than half of the average plan’s equity portfolio across all markets, with the exception of Spain. This gradual reduction in domestic equity bias has been particularly clear in the UK, where the average domestic to non-domestic ratio within the equity portfolio has fallen from 45:55 to 40:60 over the past year alone. For corporate bonds and property, evidence of a domestic bias remains, but non domestic allocations are increasingly being introduced.
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