U.K. outsourced CIO managers that made the biggest gains in 2019 went on to see the biggest losses in the first quarter as the coronavirus pandemic hit equity allocations, research shows.
At the other end of the scale, OCIOs with lower returns in 2019 tended to fare better in the three months ended March 31, said a report of the research by consultant XPS Pensions Group.
The report, which covered the performance of OCIOs running more than £190 billion ($229.8 billion), found the difference between the highest and lowest returning growth portfolio was around 10 percentage points. The top-performing OCIO in the first quarter returned -4.5%, following a 2019 calendar year gain of 8.7%. At the other end of the scale, the worst-performing OCIO returned -14.7% in the first quarter, following a 17.2% return in the calendar year 2019.
Previous research by XPS Pensions found that OCIOs with higher allocations to equities generally achieved higher returns in 2019, but at greater risk. The report said U.K. equities returned -25.1% for the first quarter, while global equities returned -15.9% for the same period. Figures are in pound sterling terms. Returns for 2019 were not available.
The first quarter also saw 75% of OCIOs make changes to their portfolios, taking advantage of new opportunities and defending against losses caused by the coronavirus pandemic. Views diverged toward the end of March and in early April, as some OCIOs increased exposure to equities while others moved toward government bonds or cash, the report said.
"For pension scheme trustees, determining if your fiduciary manager has timed the market should be a secondary consideration; the benefits of such actions may only become apparent in 2021 and beyond," said Andre Kerr, head of fiduciary management oversight, in the report. "The primary question is to determine if your fiduciary manager was evolving the strategy as your funding position progressed over a buoyant 2019. All scheme's looking for asset growth need to be exposed to some element of this risk — those taking more risk than necessary will be the ones who will be worst impacted."