No other U.S. pension fund, endowment or foundation has invested as heavily in emerging markets ETFs as the New Jersey Pension Fund, Trenton, a $3.2 billion gamble at its height. Now the state's reversing course.
The $76.8 billion pension fund has cut its holdings of emerging markets exchange-traded funds to less than $1.8 billion, according to filings through March 31 compiled by Bloomberg. The pension fund's managers had boosted the position to more than $3 billion by the end of 2012 from just $115 million in 2009.
New Jersey is souring on the trade just as the market is showing signs of rebounding following the worst annual performance relative to developed markets equities since 1998. The MSCI Emerging Markets index has gained 10% from a five-month low reached Feb. 5 as demand picks up for riskier assets after an economic slowdown in China and a reduction in U.S. monetary stimulus shook investor confidence at the start of the year.
The New Jersey Pension Fund pared holdings in Vanguard Group's developing nation ETF to about $109 million from $1.9 billion in 2012. Emerging markets equities made up 6.56% of the pension fund's assets as of February, down from 7.65% four months earlier and under its target of 8%.
Christopher Santarelli, a spokesman for the state Treasury Department, said in an e-mail that the declining allocation is the result of both a decision to reduce overall holdings in developing nation stocks as well as a shift to actively managed investments from passive strategies. He declined to comment on why the pension fund cut its position.
Gains for the pension fund of 14.6% last year were limited by losses of 2.94% on emerging markets equity investments, according to the New Jersey State Investment Council's 2013 annual report.
