The group said it had been vindicated on previous occasions when it had gone out on a limb. The decision to hold a smaller proportion of its funds in equities than many rivals was based on PDFM's view that both the US and UK stock markets would fall sharply.
Since January 1995 the FT-SE 100 has risen almost 30 per cent. It closed at 3,955 yesterday, down 16. The Dow Jones Industrial Average has risen 55 per cent over the same period.
Paul Yates, marketing director at PDFM, part of the Swiss banking giant UBS, said: "We have no intention of changing things. The markets are on the verge of a 30- to 40-year type of event. This is our philosophy and when we adopt a philosophy we have to stand with it."
He admitted that a consequence of this doom-laden view had been that the performance of pension funds managed by PDFM had suffered recently.
Other fund managers said PDFM's investment strategy was out of line. One said that for the company's position to deliver returns similar to rivals, stock markets in the US and UK must drop by 20-30 per cent.
WM Company, the Edinburgh funds analyst, said many fund management groups had built up cash significantly in the first half of this year, but only by about 1 percentage point to 6 per cent of their assets as views of the stock market turned more negative.
"The general trend of the investment management industry has been to increase liquidity," said a spokesman.
Several fund managers admitted taking an increasingly bearish view of the US market recently, confirming that they were gradually increasing their cash levels to 6 or 7 per cent of assets, compared with 4 or 5 per cent a few months ago.
One manager, who would not be named, said: "You can't help feeling sorry for PDFM. In 1994, when bond yields rose and values fell, PDFM got its asset allocation right and had good cash balances. The problem is they then took the position they hold today and have painted themselves into a corner as a result."
PDFM's defence of its position came as it was confirmed that the company, which has pounds 50bn of UK occupational pension scheme funds under its wing, has been holding between 12.5 and 15 per cent of that amount in cash since early 1995, depending on the scheme. A further pounds 3bn, about 6.5 per cent of assets, is held in government bonds.
However, PDFM said in a statement: "We have lower equity holdings and are higher in cash because equity markets are overvalued."
The company pointed out that it had taken similarly bearish positions before the October 1987 stock market crash, ahead of which its equity holdings were reduced to 72 per cent, compared with an industry average of 78 per cent.
In late 1989, when the Nikkei shares index reached an all-time high of 39,000 points, PDFM had disposed of all its Japanese equities. The index fell shortly after to a low of 14,000 before partially recovering to about 21,000 points today.
Mike Denham, investment director at Prudential Portfolio Managers, echoed PDFM's views on the US. He said: "In the past 18 months we have been running a fully invested position, although we have been increasingly concerned with the US equity market."
Mr Denham said Prudential was about 3 per cent underweight in the US, and looking more to Europe for equity growth, although it remained reasonably confident about the UK. While the proportion of assets held in cash had risen to 6-7 per cent, for some pension funds this might be nearer 8 or 9 per cent, he added.
Richard Harvey, finance director at Norwich Union, said the insurer currently held barely 1 per cent of its assets in cash, although the company was worried about US equity prices.
Nathan Parnaby, investment director at Standard Life, which holds pounds 47bn under management, said: "We are fully invested, with our cash at around 5 per cent in the last two to three years. We believe it remains right to stay reasonably well invested and don't see that changing in the next few months."
David Rough, group investment director at Legal & General, said the company's cash position had varied over the summer.
It went underweight in UK stocks when the FT-SE 100 hit 3,850, before going overweight again when the market reached 3,650. L&G is now underweight again.
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