The long and the short of it

Since 2008 defined benefit schemes have desperately sought to gain control over spiralling deficits and as a result have developed a growing appetite for asset classes that over the longer term provide risk management and regular income rather than those chasing high returns. The chart above, taken from Create Research survey, Investing in a Debt-fuelled World, reveals which classes are most likely to be chosen by DB pension funds for medium-term asset allocation, which ones are likely to be chosen for short-term opportunism and how those choices have changed over the past five years. The study shows that when investing on a medium-to-long term basis, pension funds possess a growing appetite for income-focused funds, particularly real assets such as real estate and infrastructure. Alternative credit and emerging market debt are also proving increasingly popular, despite not being on the radar five years ago. When investing on a short-term, opportunistic basis, more tactical asset classes have unsurprisingly gathered momentum, with today’s DB plans increasingly favouring distressed debt (49%), exchange traded funds (44%), high yield bonds (42%), commodity funds (37%), small cap equities (33%) and currency funds (32%) for opportunistic gains. Nick Lyster, CEO of Principal Global Investors Europe, who commissioned the study, said: “Since the 2008 credit crunch and the resulting debt crisis, investors have needed to work their assets harder – the emphasis on yield has only continued to increase. What is more, market valuations have become distorted, with priceearnings ratios having no sensible anchor points. “As a result, choosing real assets and alternative investment options has become a new way to navigate risky markets.”