You wouldn't expect pension funds to sell in a hurry. But that's exactly what they're doing now in emerging markets, according to Mark Mobius.
Patient as they are, pension funds are also famously risk-averse, said the 81-year-old investor who set up Mobius Capital Partners after leaving Franklin Templeton Investments this year. That's pushed them to cut risk all around, selling in both developed and developing countries, he said in a phone interview.
"More and more of these pension funds are buying ETFs and when the market goes down, the tendency for them is to reduce," Mr. Mobius said. "You have a strange situation in that although they may tend to be long-term investors, they want to get out and be safe."
That's bad news for emerging market bulls who had been touting enhanced interest from U.S. pension funds as a backstop against sustained losses in emerging equities on the grounds the funds don't buy easily, but once they buy, they don't sell for a long time.
If Mr. Mobius is right, that hope has been belied in the current sell-off. Investor nervousness is becoming more visible: developing nation stock volatility is surging the most since 2000.
Investors have pulled more than $6 billion from bond markets since mid-April, according to the Institute of International Finance, as the rise in the U.S. dollar and yields curbs appetite for risky assets. It's a marked shift for emerging markets, which enjoyed a two-year rally that boosted stocks and a gauge of currencies to the highest level since at least 2007. The MSCI emerging market stock index rose 0.2% Wednesday, trimming this year's losses to 1.2%.