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.