The People’s Pension will invest in a new “adaptive cap” index, designed to limit investment in the world’s largest companies.
In most market capitalisation weighted indices, much of the invested money can be concentrated in a handful of these ‘super’ companies. The People’s Pension says it was moving away from market-cap weighted equities and passive funds.
This new ‘adaptive cap’ index sets a limit on the size of the investment in a single holding within the fund. It is offered through State Street Global Advisors.
The People’s Pension says this step will improve diversification for members by increasing their exposure to smaller holdings. It also reduces the concentration of members’ holdings with individual companies, reducing the effect that any one company event may have on their returns.
As a result of investing in the adaptive cap, The People’s Pension is significantly reducing its holdings in five super companies within its North American portfolio, shifting its exposure to them from 15 per cent to 2 per cent.
Nico Aspinall, the chief investment officer of B&CE, provider of The People’s Pension, says: “By investing in the World Adaptive Capping Equity Index, we are continuing to improve the risk-return profile of members’ portfolios and reducing the reliance we have on a small number of companies.
”We see this change as a part of our continued evolution of the portfolio and the hallmark of good trustee governance available from a large master trust.”
Jenny Yoe, head of institutional business for the UK and Ireland at State Street Global Advisors adds: “We believe our smart beta approach is an important addition in evolving the investment proposition. We are seeing strong interest from UK clients in smart beta and believe increasing diversification and reducing risk offers clear benefits to clients in a transparent, cost efficient manner.”
