Corporate defined contribution plans have been hit with a double whammy during the stock market correction - declines both from stock mutual funds and allocations to company stock.
Pensions & Investments estimates DC plans among the largest 200 plan sponsors lost about $17 billion in value of their company stock holdings between Oct. 22 and Oct. 27. (The estimate is based on holdings as of Sept. 30, 1996, and the 10.8% decline in the Dow during the 5-day period.)
Plan values dropped an average of 7.2%, because of company stock alone, among the 20 DC plans with the highest company stock allocations, P&I calculates.
Procter & Gamble's plan, for example, lost 10.7% - or $1.16 billion - of its value during the period; it has 94% of DC assets in company stock. Amoco's plan declined in value by 8.6%, or $190 million; it has about 65% of its DC plan assets invested in company stock; and Mobil, which has about 54% in company stock, saw its plan value drop by more than 6%, or $144 million, from company stock alone.
But the correction has been a boon to some managers, both internal and external. The Dow Jones industrial average's drop (although preliminary data had it closing at 7496, up 335) provided buying opportunities for some and vindication for some bears.
New Mexico Permanent Fund, Santa Fe, used the market correction to buy the shares of about nine to 10 U.S. stocks, said Phil Archibeck, state investment officer for the $8.5 billion internally managed fund. Bought were: WorldCom, Citibank, Dell Computer, Compaq Computer, Johnson & Johnson and Enron. He did not specify sizes of purchases. The fund has about a 50% asset allocation to U.S. equities.
Mr. Archibeck said overvaluation had put at least some of the desired shares out of price reach until the correction: ``We used the opportunity to buy what we liked.'' He expects the fund to buy more stock later in the week.
New Jersey Division of Investment, Trenton, with $56 billion, also began a modest weeklong net buying program of U.S. stocks. During the week ending next Tuesday, the division expects to buy about 40 stocks and sell about 10, said Director Ronald Machold. He would neither name the shares nor identify a dollar amount.
The moves are a ``modest change'' for the division, which has been a net seller of U.S. stocks for the last 15 months, Mr. Machold said. ``We'd had a bad feeling about (the U.S.) market, and we'd been strategically repositioning ourselves.'' The correction is one reason New Jersey decided to become a net buyer for U.S. stocks, but isn't making any ``major turns,'' said Mr. Machold.
And for TAA managers, their bearish outlook got vindicated. PanAgora Asset Manage-ment is positioned for a further correction in U.S. stocks, said Edgar Peters, director-asset allocation. While prices are closer to where they should be, they're still overpriced, he said. ``P/es are where they were before the '87 crash,'' he said.
PanAgora's portfolios recently have had a zero allocation to stocks, and with the recent drop in long-term interest rates, the firm has been moving money out of bonds as well, Mr. Peters said. PanAgora's portfolios have made up in the last few days about half of their underperformance for the year, and finished the last few days of market turmoil just about even on a relative basis, he said.
And TAA portfolios managed by First Quadrant Corp. had their best day ever yesterday, mitigating some of the losses seen in their clients' long U.S. equity portfolios, said Rob Arnott, president and CEO. Even after the correction, the firm's models are moderately bearish on U.S. stocks he said.
Calls were coming fast and furious to mutual fund service centers. At T. Rowe Price Associates, activity was heavier Tuesday than Monday as customers took advantage of call-in automated trading systems and Web site accessibility to adjust their positions. ``The majority of people today seem to be treating this as a buying opportunity, moving from money market funds into domestic stock mutual funds,'' said Edward Giltenan, spokesman. At MFS Institutional Advisors, there was an estimated 20% increase in call volume, with exchanges about twice the norm, said a spokesman.