National Employment Savings Trust, London, hired HSBC Global Asset Management (U.K.) and Northern Trust Asset Management to run emerging markets equity allocations, in its first exposure to alternative indexing, said Mark Fawcett, chief investment officer at the plan.
The £160 million ($273.9 million) defined contribution plan has added the HSBC Global Investment Funds Economic Scale Index GEM Equity fund, and the Northern Trust Emerging Markets Custom ESG Equity Index Fund, to its suite of target-date funds.
Initially, the plan will weight its allocations to the two managers equally, Mr. Fawcett said in an e-mailed comment. “Over time we may tilt toward one or the other when we have a strong sense that either value or momentum are going to reliably drive returns over a meaningful time horizon.”
At a presentation in London on Tuesday, Mr. Fawcett said the allocation will be modest at first. “At the moment, emerging markets haven't done terribly well, but they are relatively attractive value,” he said. He added the plan expects to increase its weighting to emerging markets over the next 12 months.
Mr. Fawcett did not disclose monetary values of the allocations, but he said they would be around 1.5% of assets in the growth phase of its portfolio.
He added that, in terms of global equity, emerging markets constitute about 10% by market cap, so this weighting can be viewed as a neutral position within its overall equity exposure. NEST allocates about 50% to equity, giving a neutral position in emerging markets of 5%.
NEST uses new contributions to build asset allocations rather than rebalancing from elsewhere in the portfolio. Mr. Fawcett said the plan's monthly cash inflows were large relative to its asset base, “so we will use those to quite rapidly build up our weighting in these emerging markets mandates.”
