Stock portfolios at large pension funds had a blockbuster run. Now, managers are cashing out.
Corporate pension funds are shifting money into bonds. State and local government funds are swapping stocks for alternative investments. The nation’s largest public pension, the California Public Employees’ Retirement System, is planning to move close to $25 billion out of equities and into private equity and private debt.
Like investors of all kinds, the funds are slowly adapting to a world of yield, where they can get sizable returns on risk-free assets. That is rippling throughout markets, as investors assess how much risk they want to take on. Moving out of stocks could mean surrendering some potential gains. Hold too much, for too long, and prices might fall.For pension funds, which target specific investment returns to fund future obligations, this is a welcome change: It means they can take less risk and stay on track toward those goals. They can sell stocks, lock in price gains and move the money into bonds without sacrificing too much return. Or they can continue to push for higher returns without taking on much more risk. While stocks have slumped recently, the S&P 500 remains just 4.6% below its record close. The index’s 10% gain through the end of March marked its best first-quarter performance since 2019. Meanwhile, a persistently strong economy has pushed interest rates to multidecade highs.
@DrearyUnicornGreen2wks2W
If pension funds were selling tens of billions of stocks throughout 2023 and 2024, how come the stock market kept powering higher?
@Int3grityMuesliMountain2wks2W
Retail investors. They're always the last to get the message.
@RadicalKayleeVeteran2wks2W
When your government is $37.0T+ in debt, bad things can also happen.
Apparently, a big market timing move. Historically, market timers underperform.
@CleverHouseDemocrat2wks2W
Reallocation is not market timing, it is just smart portfolio management. Moving into and out of cash based on your perceived ability to pick market highs and lows is market timing, and a certain way to destroy your wealth.
@ISIDEWITH2wks2W
@ISIDEWITH2wks2W
@ISIDEWITH2wks2W
@ISIDEWITH2wks2W
@ISIDEWITH2wks2W
The question I have for the bond investors is, how do you hedge against the continuing supply pushing up long rates?
Without a satisfactory answer, pension funds should collect interest in money market funds, invest in growth through equities, but stay clear of bonds as they are ticking time bomb until the Federal government figures out how to finance the increasing deficits.
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