January 27, 2011

Pooled Balanced Funds Achieve Double-Digit Returns in 2010

UK Smaller Companies see highest returns in 2010 with 32.3%

UK equities swing back into favour with managers

LONDON, 27 January 2011 — Statistics released by BNY Mellon Asset Servicing today show that Pooled Balanced funds ended 2010 on a positive note with a return of 6.8% in the fourth quarter. The third positive quarter of the year, and second consecutive positive quarter, resulted in full year performance figures comfortably into double figures achieving returns of 13.8%.

Data from BNY Mellon's latest quarterly CAPS survey, shows that results for pooled balanced funds were also positive over three and five years, with returns of 3.1% and 5.4% per annum respectively.

Commenting on the results, Alan Wilcock, Performance and Risk Analytics Manager at BNY Mellon Asset Servicing, said: "Despite the good overall return of 13.8% in 2010, longer-term returns remain modest. Although Pooled Balanced funds have achieved double-digit returns in six out of the last 10 years, three negative years mean that over the ten year period these funds have achieved a median return of 4.5% per annum, ahead of retail price inflation of 2.9% per annum."

Active managers outperform in key sectors over the quarter

Active managers outperformed in a number of key sectors in the fourth quarter of 2010 including UK equities, European Equity, Japanese Equity and North American Equity. Over the quarter, UK Equity pooled fund managers achieved a return of 7.6% outperforming the FTSE All Share index which returned 7.4% over the same period.

Over twelve months, UK Equity achieved 15.2% which also outperformed its Index which returned 14.5%. For the three-year period to 31 December 2010, UK Equity posted a positive return with 1.4% per annum, matching the FTSE All Share Index. The five and ten-year periods were also positive with returns of 5.1% per annum and 3.7% per annum respectively, again matching their indices' returns.

Global Equity continued the positive trend with a return 8.9% for the quarter, although, it failed to beat its index which posted 9.4%. Over the twelve-month period to 31 December 2010, it posted returns of 15.8%, with its index returning 16.7%. The three, five and ten-year returns were positive achieving 2.6%, 5.7% and 3.7% per annum respectively.

During Q4 2010 Japanese Equities provided the highest equity return with 13.6% exceeding the return if its benchmark by 0.8%. For the year, UK Smaller Companies was the highest equity sector with 32.3% which outpaced its index which returned 19.5% for the same period. For the mid term, three to five years, Pacific basin Ex Japan provided the best returns with 8.6% per annum and 15.2% per annum respectively. Emerging Market Equity was the best equity performer over ten years with 15.4% per annum though is failed to beat its index by 0.3%.

The fourth quarter 2010 returns in the non-equity sectors were mixed with Bonds posting negative returns and Index Linked, Cash & Property all positive. UK Bonds returned -2.2% for the quarter, while International Bonds posted -0.8%. Though this quarter was negative, the mid to long-term returns for each of these sectors were positive. The strongest return from the non-equity sectors was Property with 1.8%. This also outperformed its index which returned 1.2%.

UK equities bounce back into favour

Within BNY Mellon Asset Servicing's balanced pooled fund universe, the most notable change was the increase in weightings in UK Equities which, despite the strong British stock market in the first three quarters of the year had seen managers reduce allocations to this asset class. By the end of the fourth quarter, allocations had risen to 38.2% (from 36.9% in the third quarter), returning to the same levels seen in the fourth quarter of 2009.

An analysis of asset allocation trends over the last decade show that in Q4 2000, weighting in UK Equities stood at 53.3%. Over the last 10 years, this has slowly decreased to 48.7% in 2005, 36.5% in 2008 (the lowest Q4 weighting) bouncing back up to the current 38.2% weighting - a reduction of 15.1% from the start of the decade.

According to BNY Mellon, weightings in North American Equities rose by 1.2% in the fourth quarter to 13.7%, with small reductions in the other markets compensating with the majority remaining fairly static. At the start of the decade, weightings in North American Equities were only 7.4%. It was not until mid-2008 that holdings passed into double figures. The current quarter represents a 6.3% increase in holdings over the past ten years. North American Equities also performed well in the quarter with a return of 11.9% beating its index by 0.3%. However, over ten years it was the second worst performing equity sector with a return of 0.8%.

The Bond sectors produced a mixed picture over the year, with allocations to UK Bonds decreasing further in the final quarter of 2010 to 7.4% (a fall of 0.4% compared with the third quarter), fuelled, in the main, by the continued poor performance of UK bonds throughout 2010. Weightings in Property also fell during the quarter from 0.6% to 0.4%.

"Over the last 12 months, we have seen a strong recovery in UK mid cap and small cap companies, in terms of share prices, in particular," observed Wilcock. "Whilst the picture for large caps has not been as strong they still posted double digit returns."

Wilcock added: "As major developed countries try to manage their deficit issues, currency rates continue to fluctuate with sterling weakening against the Yen significantly and the Dollar more modestly over 2010, improving returns from those markets for UK investors by 18.4% and 3.1% respectively. Sterling actually strengthened against the Euro over 2010 reducing returns by 3.6%."

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 £383 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 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, providing superior asset management and wealth management, asset servicing, issuer services, clearing services and treasury services through a worldwide client-focused team. It has $25.0 trillion in assets under custody and administration and $1.17 trillion in assets under management, services $12.0 trillion in outstanding debt and processes global payments averaging $1.6 trillion per day. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation. Additional information is available at www.bnymellon.com.

This press release is issued by The Bank of New York Mellon to members of the financial press and media. All information and figures source The Bank of New York Mellon as at 31 December 2010 unless otherwise stated. The Bank of New York Mellon, London Branch, registered in England and Wales with FC005522 and BR000818 Branch office: One Canada Square, London E14 5AL Authorised and regulated in the UK by the Financial Services Authority.