Hackney: equities better than bonds over long term

This thinking bucks the trend of local government pension schemes, which have been moving out of equities to diversify their investment portfolios.

Jill Davys, head of financial services at the £0.8bn (link downloads file) pension fund, said there was an argument for investing in equities rather than bonds over the long term.

“There are lots of different crystal balls about funding, longevity, local authorities themselves as employers, and costs,” she said.

She added she had “only known bond yields to come down” and there was “more evidence to support the fact equities provide outperformance”.

Davys said the fund had been looking at its strategic asset allocation over the past few months. “We are teeing up so the teams know if we invest 100 per cent in equity and that fails, what it could mean,” she added.

Graeme Johnson, senior investment consultant at Hymans Robertson, said many LGPS funds were seeking to diversify out of equities, a “more dramatic” trend in the private sector. “Schemes would have been doing some trimming of equities in the last few months,” he explained.

In a Technical View piece earlier this year, Shamik Dhar, head of investing at Aviva, said equities had enjoyed a “fairly uninterrupted ascent” since May 2012 and the case for investing in the asset class remained compelling. 

“Stronger growth will likely support company earnings, although the pattern will vary by region. UK and Asian markets appear more attractive than Europe for this reason,” she added. 

Mark Packham, director at PwC, said bonds were currently at a high price, but a substantial rally also in equity markets had left them at record levels too. The timing of a switch was more important than the asset class type, he added. 

“You would be moving from one asset that has done well of late to another asset class that has done well, and that is a tough call for any investment adviser to make.”