U.S. pension rebalancing could boost bonds, international stocks, banks say

Reuters

Published Sep 29, 2022 02:57PM ET

By David Randall

NEW YORK (Reuters) - U.S. fixed income and international equities could benefit from quarter-end rebalancing as pension funds square their books after a brutal three months for most asset classes, according to estimates from several Wall Street banks.

Overall, Credit Suisse expects pension funds to buy $30 billion worth of developed market equities and another $15 billion in emerging markets while trimming U.S. large-cap consumer discretionary stocks.

"September has been rough on most asset classes, but on a relative basis, the US has fared better than its international peers," analysts at the firm wrote in a Thursday report.

Wells Fargo (NYSE:WFC), meanwhile, expects pensions to move $10 billion into U.S. fixed income as the group's mean funded ratio - a projection of the gap between a fund's assets and its future liabilities - rises to 107%, near its peak for the year.

Wall Street pays close attention to quarter-end moves by pension funds given their potential outsized market influence. Overall, U.S. state and local pension funds have $5.12 trillion in assets under management, according to data from the Federal Reserve, and often rebalance each quarter to maintain consistent asset allocations.

This year's market swings have presented a challenge to asset managers looking to square their portfolios against a benchmark or return to their long-maintained allocation of stocks versus bonds. The S&P 500 is down 4.6% in the third quarter and has lost 24.2% year to date, while the U.S. bond market - as measured by the $80.3 billion Vanguard Total Bond Market Index fund - is down 3% over the quarter and 14% for the year.