Chief investment officers may have trouble sleeping right now, but they are sticking to their investment plans and some are using the market downturn as a buying opportunity.
Given the extreme turbulence of global markets over the last three weeks and near consensus among analysts and money managers that a global recession is in the offing this year, widespread CIO insomnia is not surprising, sources said.
From March 1-20, the S&P 500 index has slid 22%; the MSCI ACWI, 21% (March 19 close); the Bloomberg Barclays Aggregate Bond index, 4.2% (March 19); and 10-year Treasury Bond yields fell 30 basis points to 0.85%. The CBOE Volatility index now stands at 66.9, up 66.8%.
Recent record-setting market declines wreaked havoc on the aggregate assets of U.S. defined benefit plans.
Between Sept. 30 and March 18, total assets of the 1,000 largest U.S. DB plans fell 12% to $6.21 trillion while AUM of the 200 largest plans also fell by 12% to $5.14 trillion, estimates based on survey data from Pensions & Investments' annual survey of the largest U.S. retirement funds showed.
Despite market losses and steep AUM declines, "most asset owners are staying the course and are relying on the diversified portfolios they built during the good times to provide some protection under difficult market conditions. They are sticking to the decisions they made about portfolio management before this downturn," said Ian M. Toner, CIO of investment consultant Verus Advisory Inc., Seattle.
He said many asset owners continue to systematically rebalance their portfolios within set ranges, which may change depending on market factors.
One example is the investment team of Pennsylvania Public School Employees' Retirement System, Harrisburg, which began rebalancing the $60 billion portfolio on March 6 with the sale of $1 billion of U.S. long-dated Treasury bonds, said spokesman Steve Esack in an email.
"We sold those Treasuries because the market run pushed PSERS' allocation (to) U.S. Treasuries above our permissible internal range for that asset class. I want to emphasize that PSERS did not sell because it has financial concerns about the coronavirus. We sold because investors' fears over the coronavirus caused favorable market conditions to conduct the sale. We would have taken advantage of such market conditions no matter what the underlying cause was," Mr. Esack said.
During the week of March 9, PSERS' investment staff began rebalancing the defined benefit plan portfolio by increasing investments and commitments to gold, infrastructure and public real estate within its real assets portfolio, which had a "large underweight," Mr. Esack said.
Mr. Esack said he couldn't provide the size of shifts in allocations to these asset classes.
PSERS restructured its portfolio after the global financial crisis in 2009, shifting to a 30% equities weighting from 70%, Mr. Esack said.
"PSERS' more balanced investing practices helped the fund retain a positive return when equity markets tumbled in the 2018 calendar year. With that history as a guide, PSERS' portfolio should better withstand the coronavirus fears that have whipsawed markets, curtailed travel, tamped down economic growth projections, and caused the Federal Reserve to lower interest rates," said James H. Grossman, the system's CIO, in a March 5 news release.