The equity portfolio, which comprises 70 per cent of the fund, is split 50-50 between domestic and foreign shares. The high allocation to international equities is based on the fear that the UK equities portfolio was concentrated among too few shares. “We do not believe fundamentally that overseas shares will overperform or underperform,” says Mr Prat. “We are doing this because there are about four stocks, such as BP, which take up such a huge chunk of the UK index.”
The overseas portfolio is split roughly into thirds, in North America, Europe ex-UK and Pacific Asia, including Japan. There is also a nod to emerging markets of between 1 per cent and 1.5 per cent of the overall fund. “Emerging markets do tend to perform differently to other markets. They are more risky but over the long term, we expect to be compensated for that with higher returns,” says Mr Prat.
The same principle of diversification governs the real estate portfolio, which represents 10 per cent of the fund. Of this, 3 per cent is with Morley and 7 per cent is run by little-known UK property expert Colliers CRE – “one of our best kept secrets”, says Mr Prat.
Colliers invests some of the fund’s money in direct property and the rest in pooled specialist funds, an approach that allows a greater spread of investments. “Our direct property portfolio is worth £85m. We are not going to invest £30m in a single shopping centre,” says Mr Prat.
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