Institutional investors are taking advantage of the U.S. stock market's lofty heights this month to rebalance their portfolios and move assets into new or increased allocations.
The Dow Jones industrial average hit 14,253.77 on March 5, breaking the previous high set on Oct. 9, 2007, and setting off a stretch of eight consecutive record-setting sessions before dipping slightly on Friday to close at 14,514.11. The S&P 500 also flirted with the record of 1,565.15 set on Oct. 9, 2007, closing at 1,560.70 on Friday.
The $36.3 billion Tennessee Consolidated Retirement System, Nashville, “is staying neutral to our targets, which means we sell as equity markets move higher,” said Michael Brakebill, chief investment officer. “Most institutions are probably behaving in a similar manner.”
The record U.S. stock run serves as “a good reminder” to rebalance, said Monte Tarbox, Washington-based CIO of the $14.7 billion National Electrical Benefit Fund. “It's a great time to rebalance, to the extent that the equity portion of an investor's portfolio has gotten ahead of itself. It's not a tactical call. It's doing something pension funds ought to be doing anyway.” He would not say what allocation changes, if any, the NEBF is making.
“The current equity market valuation relative to our other asset classes is still within our policy ranges, so we are comfortable with our very modest overweight of 2%,” said David Holmgren, CIO at Hartford HealthCare, Hartford, Conn. “Risk-management-wise, within our equity exposures we greatly favor managers which focus on the corporate fundamentals ... so the market directionality noise you are concerned about is partially mitigated by our cultural conservative preferences.
“Interestingly, as other endowments play catch-up to now holding traditional long equity, they're pulling from their illiquid bucket, leaving us now in the selective spot to cherry pick as we move against the herd. For us, this is a classic win-win scenario.”
Hartford HealthCare has $1.8 billion combined in its pension plan and endowment fund, with a 55% growth allocation that includes U.S. and international equities and private equity. The private equity allocation of 6% was approved in February, to be funded from rebalancing the U.S. equities to 26% and international equity to 23%.