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Pensions Sell Stocks to Buy Bonds
Coming off a year when the broad U.S. stock market enjoyed a 30 percent gain, investors and financial advisers are struggling to determine the most appropriate portfolio asset allocation consistent with their tolerance for risk, says Andrew Clinton, president of Clinton Investment Management, in Stamford, Conn. Pension funds, in particular, are striving to lock in the outsize gains they have enjoyed over the past few years in the booming debt and equity markets. To do so, they are going against the broader fund-flow trend by selling equities and shifting money to fixed income. Deutsche Bank (DB) forecasts that pensions will liquidate about $150 billion in equities this year alone to buy bonds with maturities of 10 years or longer.
In the third quarter, U.S. pension funds, which have assets of $16 trillion, swapped out of equities and into bonds at the fastest clip in five years, data compiled by the Federal Reserve show. According to Matt Robinson of Bloomberg News, they bought $117 billion of debt on an annualized basis and offloaded $135 billion of stocks. The 100 biggest corporate pension plans thinned their deficits by a net $319 billion, according to consultancy Milliman; they are now 95 percent funded, compared with a low of 77 percent two years ago.
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