Biggest Pension Fund Shifts (10/14)

The world’s largest pension fund announced a major asset allocation shift. Japan’s $1.1 trillion Government Pension will be using exchange-traded funds (ETFs) to double its allocation to global equities.

Earlier this month, Calpers announced an increase in their asset allocation target to real estate. Both of these important pension fund changes reflect asset allocation shifts in the direction of the ETF portfolio prescribed by David Swensen, CIO of Yale University.

This past decade, the efficient multi-asset class (eMAC) portfolio, which is based on Swensen’s prescription, delivered over 8% annually using six leading ETFs from Vanguard and iShares.

See InvestableBenchmarks.com and “The Best ETFs for Growth.”

Japan’s Pension Fund Cutting Local Bonds to Buy Equities

Anna Kitanaka, Shigeki Nozawa and Yoshiaki Nohara, 10/31/14

Japan’s public retirement-savings manager will put half its holdings in local and foreign stocks and start investing in alternative assets as the world’s biggest pension fund seeks higher returns.

The 127.3 trillion yen ($1.1 trillion) Government Pension Investment Fund set allocation targets of 25 percent each for Japanese and overseas equities, up from 12 percent each, it said at a briefing today in Tokyo. GPIF will reduce domestic bonds to 35 percent of assets from 60 percent. The new figures don’t include an allocation to short-term assets, while the previous targets did. Analysts surveyed by Bloomberg this month had anticipated levels of 24 percent for local stocks, 15 percent for global shares and 40 percent for Japanese bonds, taking short-term holdings into account.

The new allocations were released hours after the Bank of Japan unexpectedly added to monetary easing, sending the Nikkei 225 Stock Average to a seven-year high. Reports that the fund’s announcement was coming today also buoyed shares. Investors have been awaiting the revised strategy since a government panel said last year GPIF was too reliant on domestic bonds, with the central bank stoking inflation and pension payouts mounting as the nation’s population ages.

“The BOJ and GPIF announcements are delivering a double punch to push up stocks,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank Ltd., which has the equivalent of $354 billion in assets. “The BOJ came as a total surprise with almost nobody expecting action today.”

GPIF increased its target for foreign bonds to 15 percent, up from 11 percent. The fund will put as much as 5 percent of holdings in alternative investments such as private equity, infrastructure and real estate, with those accounted for within the other asset classes rather than as a separate allocation.

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