Direct holdings of UK shares accounted for just 7.7% of the total financial assets of UK insurance companies and pension funds (ICPFs) at the end of the first quarter of 2012, down from a peak of 46.6% in the first quarter of 1998, according to the Office for National Statistics (ONS). Aside from 7.3% at the end of last year, this represents the lowest weighting on record in official data extending back to 1964.

The 39.0 percentage points withdrawn from UK equities over the past fourteen years has been reallocated to bonds (+15.9), mutual funds (+11.2), derivatives (+4.9), long-term loans (+4.4) and foreign equities (+1.8) – see first chart.

A small part of the reduction is attributable to institutions preferring to hold UK equity exposure indirectly via mutual funds. ICPFs’ indirect holdings of quoted UK equities accounted for 62% of their direct exposure at the end of 2010, according to the annual ONS share ownership report. Applying this proportion to the 7.7% of directly-held UK shares at the end of the first quarter suggests total exposure of 12.4% (i.e. 7.7 times 1.62) – still far beneath the historical average for direct holdings.

“Structural” sales of domestic shares by ICPFs may have acted as a drag on UK relative equity market performance in recent years. The weighting will probably fall further but the low absolute level suggests that the pace of selling will, at least, slow. Institutions' cash ratio, meanwhile, is about average by past standards – second chart.