Pension funds and money managers are taking the rollicking volatility in the stock market in stride.
Since the Dow Jones industrial average hit its all-time high close of 9337.97 on July 17, managers were more likely to be net buyers than sellers of stocks, according to a survey by Pensions & Investments.
Most respondents to the survey indicated they are expecting the stock market to finish the year higher than it was on July 17. As of Aug. 20, however, the market had 726.56 points, or 7.8%, still to make up just to get back to July's record high.
Last month's 1,000-point market setback and subsequent 400-point rebound have caused almost no changes in pension funds' asset allocations, the survey found.
Even inquiries about market volatility have been rare. Few executives at pension funds have had to field volatility questions from their superiors.
"None -- zilch -- nada," one pension fund executive replied when asked about questions from management.
In one exception, a pension fund executive got 10 inquiries, mostly about the impact on the market value of the fund.
Laszlo Birinyi Jr., president, Birinyi Associates Inc., Greenwich, Conn., attributed the recent market volatility to asset allocators trying to rebalance their portfolios to their target allocations.
"Asset allocators have been selling stocks when the market hit new highs," he said. "The bond market didn't do anything. So they sold stocks to get back in balance.
"Pension funds may be rebalancing to get back to target allocations.
"Mutual funds have been less active in the market because mutual fund cash hasn't been as abundant as it has been in recent years. But mutual funds haven't been selling to raise cash."
Program trading has also contributed to the volatility, Mr. Birinyi said, although he didn't have figures available.
"The day after the Dow Jones's 300-point-plus drop, the market continued to fall until late in the day," he said. Then "a big index fund bought a lot of stocks late in the day, putting the market up for the day."
He could not identify the index fund.
"It creates a lot of volatility," he said. "It exaggerated the volatility of the market.
"Institutional investors are being cautious. When you have an unsettled market, buyers back off."
But "retail investors in general have been buying," Mr. Birinyi said.
In the P&I survey, some pension fund executives, as well as money managers, put the blame for volatility on their own industries by singling out pension funds, 401(k) investors, mutual funds, hedge funds and/or derivatives-based strategies. In the finger pointing, hedge funds were blamed a little more than the others.
Ultimately, most pension funds maintained their asset allocations and did no rebalancing as a result of the volatility, according to the survey.