Bite-Sized: China A Shares why, when and how?
Amongst the myriad of complex problems that institutional investors are tasked with solving, we believe there are some parts of the portfolio where relatively straightforward improvements can result in significantly better outcomes. The equity allocation is one of these.
Whilst some hold the view that equity allocations are less important to pension funds as they move towards full funding and into de-risking mode, they still dominate pension fund assets (c.40% of the overall asset allocation globally) and are a meaningful contributor to overall portfolio returns.
Considering less mature pension funds remain heavily reliant on exposure to equities to get the returns required, equity allocations are still significant in more mature pension funds (~75% of Redington clients have some form of equity exposure, despite many being well funded).
Add to that DC allocations and default strategies, and equities remain a very important and strategic asset class.
Given their significance, we believe it’s important for these allocations to be invested as optimally as possible.
It is common to see equity portfolios that consist solely of simple global passive funds with perhaps some legacy domestic equity. This is often driven by a desire for low fees, simplicity or a bias towards UK/US.
We believe this overlooks important areas of the market and opportunities for excess returns – namely, domestic Chinese equities.