Britain's pension funds are likely to shift further into bonds despite retail chain Boots rowing back from its controversial decision to hold all its pension assets in fixed income, analysts said.
Boots, which moved its entire 2.836 billion pound ($5.18 billion) fund to bonds more than three years ago, has partly changed tack, saying it will shift 15 percent of its money to other assets.
But analysts said this move was unlikely, however, to encourage other pension funds to slow their drive to bonds.
"It is quite clear that UK pension funds remain, from the liability perspective, over-invested in stocks relative to bonds. Everybody expects the transition (to bonds) to continue," said Stephen Dulake, credit strategist at JP Morgan.
Pension funds, facing rising liabilities from an ageing population, have been moving to bonds in recent years, because they are considered able to give a more predictable revenue stream for a set period than equities, and at lower risk.
A survey by the Investment Management Association (IMA) this week said equity investment by pension funds was likely to continue declining. At present British managed pension funds hold 56 percent of assets in stocks and 43.5 percent in bonds, with the remainder in cash, property and other areas, the IMA said.
"I don't think the broad story has changed all that much. It is very hard to envisage that there will be wholesale migration back into equities," Dulake said.
One reason why some pension funds may have second thoughts about fixed income is because bonds have become relatively expensive compared to equities since the end of the equity bull market in 2000, analysts said.
"My worry is that having been sucked in by the equity market, we could get sucked in by bonds," Andrew Kirton, head of investment consulting at Mercer Human Resource Consulting, told Reuters. The Boots pension scheme was fortunate in being able to switch entirely into bonds in 2000 and 2001 when prices looked relatively attractive, he added.
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