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January 06, 1997 12:00 AM

LOW EXPECTATIONS FOR STOCK MARKET: PENSION OFFICIALS ANTICIPATE SMALL GAIN

Paul G. Barr
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    Pension fund executives expect the stock market to show almost no gain in 1997, a survey jointly conducted by Pensions & Investments and Putnam Investments, Boston, shows.

    On average, pension executives forecast the Dow Jones industrial average will be 6,425 on March 31, 6,479 on June 30, 6,501 on Sept. 30 and 6,532 on Dec. 31. The Dow moved broadly during the survey period. It finished at 6,464 on Dec. 9, when surveys began to be returned by respondents, and ended at 6,524 Dec. 24, when the last few surveys were returned.

    In addition, pension executives said they expect to increase their international equity and fixed-income allocations in 1997, as well as their funds' indexing of U.S. equities.

    And they expect to have more staff overseeing their pension funds in 1997. According to the responses, the number of pension investment staffers will rise to an average of five per fund in 1997, up from four in both 1995 and 1996.

    On the defined contribution side, more than a third expect to add investment options to their defined contribution plans.

    Meanwhile, the survey shows fund allocations slowly creeping higher for U.S. and non-U.S. equities.

    The average allocation to U.S. equities is expected to rise to 47% by the end of 1997, compared with the current average allocation of 46.9%, the survey shows.

    The change in plan sponsors' expected allocation to non-U.S. equities was a little greater, an average expected allocation of 13.6% by the end of 1997, compared with a current allocation of 13%.

    Non-U.S. fixed income allocation was expected to rise to 3.9%, on average, up from current allocations of 3.4%.

    But U.S. fixed-income allocations are expected to fall. The average expected allocation as of Dec. 31, 1997 was 29%, compared with a current allocation of 30.1%.

    Indexing of assets is also expected to grow, particularly in U.S. equities. The amount plan sponsors expect to be in indexed equities at the end of 1997 is 27.6%, on average, compared with the current average of 26.3%, survey respondents reported.

    The amount of fixed income expected to be indexed by the end of 1997 was 10.4%, on average, up slightly from the current average allocation of 10.2%.

    The expected allocation to real estate as of the end of 1997 is predicted to be 2.5% of assets, down from the current average allocation of 2.8%.

    Regarding plan sponsor use of outside money managers, 16% of respondents will add managers, while 12% expect to reduce the number of managers.

    Core U.S. equity, private equity and high-yield bond managers were the most likely to be added by the respondents.

    Real estate, domestic equity, domestic fixed-income and international managers were among those expected to be reduced by some respondents.

    Thirty-four percent of respondents will be adding asset classes to their plans but using their existing investment managers.

    Of the total respondents, 78% use a pension consultant, and 19% of those have a consultant on retainer.

    Some 7% of respondents expect to change defined contribution record keepers in the coming year, while 28% expect to make changes to their DC investment options and 36% expect to add investment options.

    The average pension assets of the fund executives responding to the survey was $5.9 billion,; the median was $1.9 billion. The average asset size of defined benefit plan respondents was $5.4 billion, while the median was $1.3 billion.

    The average size of defined contribution plan was $681 million, while the median was $140 million.

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