UK pension funds are cutting back their exposure to US equities, amid concerns over the market\u2019s growing concentration in a small number of tech stocks and the risk of a bubble in the AI sector. <\/p>\n
Schemes managing more than \u00a3200bn in assets for millions of British savers told the Financial Times they have been shifting allocations to other geographical regions or adding protection against a potential fall in stock prices in recent months.<\/p>\n
The moves come as the tech-heavy Nasdaq Composite index has shot up more than 20 per cent this year \u2014 and more than doubled since early 2023 \u2014 driven by the so-called Magnificent Seven stocks such as Nvidia, Alphabet and Meta.<\/p>\n
This has fuelled concerns about the market\u2019s growing concentration in a small number of stocks and the risk of a bubble that could leave retirement savers exposed to a sharp sell-off.<\/p>\n
\u201cWe recognise the specific risks associated with US equities, such as tariff measures and the concentration in large tech stocks,\u201d said Callum Stewart, head of investment proposition at Standard Life, part of the Phoenix Group. It oversees the \u00a336bn Sustainable Multi Asset fund serving 2mn members, where roughly 60 per cent of its equity assets are in North America.\u00a0<\/p>\n
Stewart said the fund was in the process of reducing its allocation to US stocks and is instead boosting exposure to UK and Asian markets.<\/p>\n
The UK\u2019s defined contribution pension sector, in which employees, typically with employer support, build individual retirement pots, is especially sensitive to potential stock market swings because younger savers are often heavily invested in US indices, which are dominated by the so-called Magnificent Seven.\u00a0<\/p>\n
Savers 30 years from retirement typically have 70 to 80 per cent \u2014 or even 100 per cent \u2014 of their assets in global equities, with most equity allocations dominated by US Big Tech.<\/p>\n
\u201cThe concentration in US tech, combined with valuations that are high both historically and relative to other sectors, is drawing closer attention to the risks this poses for members,\u201d said Neil Maines, senior consultant at investment adviser XPS.<\/p>\n
Aon Master Trust, a \u00a312bn scheme with 185,000 members, sold about 10 per cent, or roughly \u00a3700mn, of its global equity portfolio over the summer, much of it US stocks. Since inception a decade ago, the fund has put 100 per cent of its members\u2019 savings into equities during the early stages of their plans.<\/p>\n
Jo Sharples, chief investment officer, said the fund had cut its equity allocation \u201cto take advantage of an opportunity in the gilt market\u201d but added that \u201cwith all the talk of an AI bubble, cutting our equities exposure has taken the edge off some of those risks\u201d.<\/p>\n
She added that a market correction was \u201cone of those risks that we are thinking about more and more\u201d, although she did not believe \u201cwe are in bubble territory yet\u201d. <\/p>\n
Fidelity, overseeing the \u00a323.9bn FutureWise fund, said it had not reduced US equity exposure but had focused on protecting members nearing retirement by shifting US equity exposure towards \u201cmore stable\u201d companies, while also \u201cadding gold for risk hedging, and shortening bond duration\u201d.<\/p>\n
\u201cWe\u2019re embedding stronger downside protection within this US exposure to offset emerging risks \u2014 particularly in tech,\u201d Fidelity said.<\/p>\n
Nest, a \u00a358bn state-backed workplace pension scheme, has US equity exposure of around \u00a317bn. Chief executive Mark Fawcett said the fund was directing new pension contributions towards private markets rather than selling existing US equity holdings.\u00a0<\/p>\n
\u201cWe are diversifying away from those big tech stocks,\u201d he said. \u201cIt\u2019s impossible to say this tech boom is a bubble, but it\u2019s our job to manage risks, and we\u2019re doing that through diversification.\u201d<\/p>\n
The moves come as global institutions have warned that equity markets are increasingly susceptible to a sharp correction, particularly given the dominance of a small number of stocks. As at the end of October, the Magnificent Seven accounted for around one-quarter of the MSCI World index.\u00a0<\/p>\n