International equities returned nearly 20% in the year ended Sept. 30, 2006, strengthening the portfolios of U.S. pension funds that invest outside their home turf.
Combined, total international equity investments among the 200 largest employee benefit plans totaled nearly $600 billion as of Sept. 30, with $421.3 billion in active international securities, $128.7 billion in passive international index strategies and $49.8 billion in enhanced indexed strategies. (No 2005 comparisons are available as 2006 marked the first year Pensions & Investments collected data at this level).
In general, it was a good year to have foreign exposure. The Morgan Stanley Capital International Europe Australasia Far East index rose 19.7% during the 12-month period ended Sept. 30. That handily beat U.S. stocks as the Russell 3000 index gained 10.2%. International bonds rose 2.2% for the year ended Sept. 30, as measured by the JPMorgan Global Government Bond index.
Delving into various investments, active international securities assets among defined benefit plans in the top 200 jumped 10.7% to $464.1 billion as of Sept. 30 from $419.1 billion in the year-earlier period. When adjusted for the strong market, however, the active international securities assets actually declined 6.2%.
Eileen Kwei, a consultant in Callan Associates Inc.'s plan sponsor consulting office in San Francisco, said the market-adjusted decline is likely the result of rebalancing activity.
"Given the run-up, plan sponsors should balance back to target allocations," she said.