Pension funds, sovereign wealth funds, and the like are still shaking off the dust from the great financial crisis a decade ago. But they’re steadily increasing their allocations to equities as funding shortfalls necessitate higher returns, and consequently more risk.
Database provider Wilshire Trust Universe Comparison Service calculated that public pension plans had increased US equities to 47.3% of their allocations, as cited by The Wall Street Journal.
So far it seems to be paying off for investment managers, as the stock market continues to hit records day after day. US equities rose 1.23% for the third quarter and 2.95% for the year, according to Wilshire, while the remainder of the world continues to show signs of decline as international equities fell -1.80% and 1.23%, respectively, during the same periods.
“They are looking for risk and finding it in the equity market, and historically they have been benefiting from that,” Managing Director Robert J. Waid told the WSJ. “The concern is going to be when and if that changes.”
“The significant decline in interest rates boosted performance of bonds and other interest rate sensitive assets, including defensive equities during [the] third quarter. Despite strong year-to-date performance, the sell-off in global equities during [the] fourth quarter 2018 is weighing on the trailing one-year performance for most institutional plans,” said Jason Schwarz, president, Wilshire Analytics and Wilshire Funds Management.
The migration to US equities isn’t ubiquitous, however. One of the country’s largest pension plans, the New York State Common Retirement Fund, signaled that it was looking to change its investment strategy from equities to bonds. Chief Investment Officer Anastasia Titarchuk announced that the fund commissioned an asset allocation study that could potentially call for a decrease of several percentage points in the fund’s allocation to equities.
Wilshire’s study also discovered that large endowments and foundations continued significant alternatives exposure for the quarter, increasing to a median 51.03%.
Equity allocations have been all over the place recently, to little surprise. Super high valuations in domestic markets, coupled with anxiety and cautiousness about another looming recession, alongside failing international equities, has helped to propel the current situation. The UK’s largest corporate pension funds reported for the first time they’re investing less than 20% of their portfolios in equities.