The latest Towers Watson review of the economic assumptions underlying the optimised portfolios available through our platform has resulted in a revision to asset allocations this quarter.
Over the quarter there was a modest reduction in the expected returns on UK cash, UK fixed interest, UK Equity and property, but a small increase in the expected return on International Equity. Long term volatility was broadly unchanged across all the asset classes.
Long term expected returns for UK fixed interest reduced to 1.49% from 1.76% p.a. The expected returns for these asset classes are influenced by current UK long bond yields, which reduced during the quarter.
The projected cash return forecasts have a tendency to influence projected returns on other assets such as equities and property. Over the quarter the expected long-term returns for UK cash reduced to 1.42% p.a. from 1.62% p.a. reflecting expectations of a slower pace of UK interest rate increases. The projected expected return for UK Equity reduced to 6.49% p.a. from 6.70% p.a. The projected expected returns for UK commercial property also reduced to 4.26%, reflecting the reduction in forecast UK cash returns. Projected returns from International Equity marginally increased to 8.17% p.a. from 8.12% p.a. reflecting small increases in expected US and Eurozone cash returns.
The overall effect has been minor changes in the allocations between the asset classes, with the most notable shift being a small increase in the allocation to International Equity relative to UK Equity, and with a small increase in cash relative to risk assets.
View the standard asset allocations as at June 2017