July 27, 2011

Balanced funds record fourth consecutive positive quarter

European ex UK Equity funds top performers with median returns of 29.1% over 12 months

Japanese Equity and Pacific Basic ex Japan pooled funds back in positive territory after losses in Q1 triggered by the March earthquake and tsunami

LONDON, 27 July 2011 — Statistics released by BNY Mellon Asset Servicing today show that balanced pooled funds have continued to record positive results and in the second quarter of 2011 achieved a return of 1.3%. Balanced funds have achieved positive returns in each of the last four quarters, meaning that over the last year, these funds returned 19.2%.

Data from BNY Mellon's Pooled Pension Fund Database, which covers the largest and most representative sample available to UK pension funds' trustees, shows that over a three-year period to 30 June 2011, Balanced funds returned 7.1% per annum. These returns were no doubt diminished as a result of the financial crisis in 2008, which saw these funds post negative returns in each quarter of that year.

Returns over both five and 10 year periods were fairly consistent with results of 5.5% per annum and 5.3% per annum respectively. Over these periods, balanced funds achieved real rates of return of 2.0% per annum and 2.3% per annum against the Retail Prices Index.

UK equity pooled fund managers also provided positive results over the quarter and returned 1.8%. They did however fall slightly short of the return on the FTSE All Share by 0.1%. Some strong results in the latter half of 2010 meant that on a one-year basis, UK Equity funds were one of the top performers, with these funds achieving a median return of 26.1% and outperforming the FTSE All Share by 0.5%.

As was the case with many pooled funds, UK equity funds suffered during the 2008/09 financial crisis, resulting in a three-year return of 6.6% per annum. Over five and ten years, UK equity pooled funds achieved returns of 4.6% per annum. Despite strong relative performance in this sector during the quarter, managers moved money away from UK equities within balanced funds, and holdings in this sector fell from 38.0% to 37.9%.

"The very strong performance of UK equities over the last 12 months (median 26.1%) was only surpassed by European ex UK funds (median 29.1%). These European funds benefitted from sterling's weakness compared to the euro, which unhedged added over 10% to returns for UK investors," noted Alan Wilcock, Performance and Risk Analytics Manager at BNY Mellon Asset Servicing.

Q2 sees mixed results in overseas equities performance

During the second quarter, results were mixed within the Overseas Equity pooled funds. European ex UK Equity pooled funds once again provided the strongest overseas equity return with a return of 2.7%. These funds proved to be the only Overseas Equity funds to achieve positive results in each quarter of the last year, and this consistent strong performance meant that on a one-year basis these funds returned 29.1%. It is therefore no surprise that the last quarter saw holdings in this sector boosted by 0.2% to 13.5% at the end of June.

Japanese Equity and Pacific Basic ex Japan pooled funds appeared to bounce back during the second quarter, after suffering losses during Q1 as a result of the earthquake and tsunami that struck Japan in March 2011. Japanese equity pooled funds achieved a return of 0.8% during the quarter, which is a considerably stronger performance than last quarter when these funds returned -6.9%. During the same quarter, Pacific Basic ex Japan pooled funds made some small gains with a return of 0.3%, compared with -0.9% for the previous quarter.

"As we noted in April, the last time Japan suffered a natural catastrophe of similar scale to the earthquake and tsunami disaster of March 2011, was in the first quarter of 1995 when an earthquake struck Kobe," observed BNY Mellon's Wilcock. "An analysis of our data shows that it took two quarters for Japanese equities to return to positive territory, however just three months on from 2011's disaster, and we are already seeing positive returns."

By contrast, negative results continued for emerging market equity funds, with a return of -1.2% during the quarter. After performing well in the previous three quarters, North American equity funds struggled during the last quarter with a median return of -0.6%. On an overall basis, overseas equity funds achieved a return of 0.8% during the quarter and 20.7% over the year.

After a somewhat shaky start to the year, bond funds and index linked gilt funds performed well during the second quarter of 2011. UK bond funds returned 2.1% during the quarter and were outperformed by international bond funds which returned 2.8% over the same period. Some mixed performances over the last year meant that on a one-year basis, these funds returned 5.3% for UK bonds and 2.8% for international bonds.

Over a three-year period to 30 June 2011, international bonds achieved a return of 14.7% per annum making this one of the strongest performing sectors over this period. Within Balanced funds, asset allocations in international bonds increased by 0.3% to 3.7% as managers moved money into this sector. Index Linked pooled funds also performed well during Q2 2011, and achieved a return of 4.3% making this one of the top performing funds of the quarter. Over a one-year period, these funds returned 9.8%. As a result of this, we saw weightings boosted slightly from 0.7% to 0.8% during the quarter as managers moved money into Index Linked Gilts.

After the turbulent market conditions of 2008 and the early part of 2009, property pooled funds have since enjoyed a steady stream of positive returns. During the second quarter of 2011, pooled property funds achieved a return of 1.7% - the eighth consecutive positive return for these funds. As expected, returns were less favourable over the medium term with a median return of -1.0% per annum over a five-year period.

Survey size

BNY Mellon Asset Servicing's Pooled Pension Fund Database covers the largest and most representative sample available to UK pension funds' trustees. BNY Mellon Asset Servicing currently covers 54 separate asset managers who manage over £382 billion in pooled funds, both balanced and specialist.

The performance analysis and other information in this press release are based on historical data and are intended for informational purposes only. Past performance is not a guarantee of future performance. This press release does not constitute investment advice, nor is it an offer or recommendation of any security, investment product, service or firm.

BNY Mellon Asset Servicing offers clients worldwide a broad spectrum of specialised asset servicing capabilities, including custody and fund services, securities lending, performance and analytics, and execution services. BNY Mellon Asset Servicing offers its products and services through The Bank of New York Mellon and other subsidiaries of The Bank of New York Mellon Corporation.

BNY Mellon is a global financial services company focused on helping clients manage and service their financial assets, operating in 36 countries and serving more than 100 markets. BNY Mellon is a leading provider of financial services for institutions, corporations and high-net-worth individuals, offering superior investment management and investment services through a worldwide client-focused team. It has $26.3 trillion in assets under custody and administration and $1.3 trillion in assets under management, services $11.8 trillion in outstanding debt and processes global payments averaging $1.7 trillion per day. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available at www.bnymellon.com and through Twitter @bnymellon.

1The median return is derived as follows; if the pooled fund results were arranged in descending numeric order then the median return would be exactly half way down this list. If the total number of values in the sample is even, then the median would be the average of the two middle numbers.