Exposure to equities within with-profits AVC funds has continued to fall over the past year, according to a survey by consultant Watson Wyatt.
Its 2004 survey of additional voluntary contribution funds shows that the average allocation to UK and overseas equities of with-profits AVC funds has fallen to 40.4 per cent from 47.3 per cent in the 2003 survey and 63.6 per cent in the 2002 survey.
Equity exposure of managed unit-linked AVC funds has remained fairly consistent over the same period at 81.3 per cent in 2004, 78.7 per cent in 2003 and 79.7 per cent in 2002.
Senior consultant Andy Parker says the FSA is in the process of introducing changes to the way it measures the solvency position of with-profits funds and this may have led some funds to reduce their with-profits equity exposure immediately to ensure they meet the requirements next year.
The Watson Wyatt survey shows the average with-profits AVC fund has outperformed the average managed unit-linked fund over three, five and 10 years, based on contributions of £100 a month.
Parker says: “Part of the reduction in equity exposure may also be a tactical asset allocation decision. Either way, the effect is that, from the with-profits and managed unit-linked funds having fairly similar mixes of underlying assets a few years ago, there is now a marked difference in allocation strategy.”