May 7, 2020 - Economy & Business

U.S. pension funds continue to lurch toward bonds amid coronavirus pandemic

Dion Rabouin, author of Markets
Reproduced from eVestment; Table: Axios Visuals

U.S. pension plans already were above their target allocation to fixed income before the coronavirus pandemic, and the outperformance of fixed income during the first quarter has further shifted the tide, a new report from eVestment shows.

Why it matters: Fewer people are participating in the stock market's gains and losses.

  • This new paradigm was evidenced in 2019 when investors poured a record amount of money into bond funds while pulling a record amount out of stock funds.
  • That happened despite the S&P rising by nearly 30%, and stocks broadly outperforming bonds by a wide margin.

Why it's happening: The combination of an older population nearing retirement and anxiety about a record-long bull market in stocks shifted investors toward higher allocation to bonds and movement out of stocks.

One level deeper: Based on target allocations provided to eVestment, U.S. pension plans were over-allocated to fixed income by 450 basis points at the end of the first quarter and under-allocated to equities by more than 350 basis points.

  • In fact, pension funds were under-allocated to every asset class — equities, alternatives, real assets, multi-asset strategies and other — except fixed income and cash, the data show.

Go deeper: Americans are calm about their retirement savings despite coronavirus fallout

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