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Overseas please
Despite the persistent strength of the dollar, U.S. pension fund managers want to add a little more foreign spice to their portfolios.
Despite the persistent strength of the dollar, U.S. pension fund managers want to add a little more foreign spice to their portfolios. More than 80 percent of respondents to this month's Pensionforum expect to increase their allocation to foreign equity in the coming year. Some of those mandates should be up for grabs: Almost 62 percent of respondents are only somewhat satisfied with the current performance of their international equity managers.
An overwhelming majority, nearly 94 percent, of the plan sponsors polled look to external managers for the asset class, and an almost equally large percentage of respondents benchmark against the MSCI Europe, Australasia and Far East index. Some 75 percent of plans allocate between 6 and 20 percent to foreign stocks, with only about 15 percent allocating more than 20 percent. Roughly half the respondents say their allocation level is about the same as it was two years ago, with only 3 percent saying their allocation had been somewhat lower.
When it comes to emerging markets, which spooked more than a few pension investors in 1998 with the collapse of the Russian ruble and the meltdown of Long-Term Capital Management, respondents were less enthusiastic. Only about 9 percent indicate that they allocate more than 5 percent to those stocks, and 31.6 percent report that they have no emerging-markets stocks. Nearly 61 percent do
not treat emerging markets as a separate
asset class.
The fees for international equity managers are generally higher than those of the commoditized and often indexed U.S. equity managers. More than half of all respondents say that managing foreign assets is somewhat more expensive than managing domestic assets. Most respondents, 68.8 percent, say the management expense of running foreign assets is about the same as it was five years ago.
What percentage of your total assets are in foreign stocks?
None 3.6%
1 to 5 percent 6.7
6 to 10 percent 25.5
11 to 15 percent 24.8
16 to 20 percent 24.2
More than 20 percent 15.2
How does that percentage compare with two years ago?
Substantially more 13.9%
Somewhat more 35.8
About the same 47.3
Somewhat less 3.0
Substantially less 0.0
If you have increased your holdings in the past two years or plan to, what reason best explains why?
Looking for more
diversity 67.1%
Expect a rebound in
foreign stock
performance 9.2
Superior long-term
returns 9.2
Globalization of public
businesses 3.9
Other 10.5
What percentage of your
foreign stocks are actively managed?
100 percent 63.8%
75 to 99 percent 11.9
50 to 74 percent 10.6
25 to 49 percent 1.9
1 to 24 percent 4.4
None 7.5
How does that percentage compare with two years ago?
Substantially more 4.4%
Somewhat more 10.1
About the same 78.5
Somewhat less 3.8
Substantially less 3.2
What portion of your
foreign stocks are
managed internally?
100 percent 4.4%
75 to 99 percent 0.6
50 to 74 percent 0.6
25 to 49 percent 0.0
1 to 24 percent 0.6
None 93.8
What performance benchmark do you use for your foreign stocks?
MSCI Europe,
Australasia and
Far East index 88.5%
Another standard
index 9.6
U.S. stock holdings 0.0
Peer group of
managers 7.0
Other 7.0
How does the performance of your actively managed foreign stock portfolio
compare with the performance of your benchmark?
Substantially better 40.7%
Somewhat better 43.3
About the same 12.0
Somewhat worse 3.3
Substantially worse 0.7
What percentage of
your total assets are in
emerging-markets stocks?
None 31.6%
1 to 2 percent 29.1
3 to 5 percent 30.4
More than 5 percent 8.9
If you own emerging-markets stocks, do you treat them as a class separate from your other foreign stocks?
Yes 39.1%
No 60.9
If you own emerging-markets stocks, how long have you owned them?
Less than a year 6.5%
Between one and
three years 31.8%
More than three years 61.7
What percentage of your total assets do you invest in
foreign private equity?
None 80.4%
Less than 2 percent 17.7
More than 2 percent 1.9
What percentage of your total assets do you invest in
foreign real estate?
None 91.7%
Less than 2 percent 7.6
More than 2 percent 0.6
How does the expense of managing foreign assets compare with that of managing domestic assets?
Substantially more
expensive 25.5%
Somewhat more
expensive 56.4
About the same 17.4
Somewhat less
expensive 0.7
Substantially less
expensive 0.0
If you invest in foreign assets, how does the management expense compare with five years ago?
More expensive 8.5%
Less expensive 22.7
About the same 68.8
How satisfied are you with the performance of your
foreign equity?
Very satisfied 33.1%
Somewhat satisfied 61.7
Somewhat dissatisfied 5.2
Very dissatisfied 0.0
Do you expect to increase your allocation to foreign
equity in the coming year?
Yes 80.6%
No 19.4
The results of Pensionforum are based on quarterly surveys of a universe of 800 corporate and 250 public pension plan sponsors. Because of rounding, responses may not total 100 percent.
An overwhelming majority, nearly 94 percent, of the plan sponsors polled look to external managers for the asset class, and an almost equally large percentage of respondents benchmark against the MSCI Europe, Australasia and Far East index. Some 75 percent of plans allocate between 6 and 20 percent to foreign stocks, with only about 15 percent allocating more than 20 percent. Roughly half the respondents say their allocation level is about the same as it was two years ago, with only 3 percent saying their allocation had been somewhat lower.
When it comes to emerging markets, which spooked more than a few pension investors in 1998 with the collapse of the Russian ruble and the meltdown of Long-Term Capital Management, respondents were less enthusiastic. Only about 9 percent indicate that they allocate more than 5 percent to those stocks, and 31.6 percent report that they have no emerging-markets stocks. Nearly 61 percent do
not treat emerging markets as a separate
asset class.
The fees for international equity managers are generally higher than those of the commoditized and often indexed U.S. equity managers. More than half of all respondents say that managing foreign assets is somewhat more expensive than managing domestic assets. Most respondents, 68.8 percent, say the management expense of running foreign assets is about the same as it was five years ago.
What percentage of your total assets are in foreign stocks?
None 3.6%
1 to 5 percent 6.7
6 to 10 percent 25.5
11 to 15 percent 24.8
16 to 20 percent 24.2
More than 20 percent 15.2
How does that percentage compare with two years ago?
Substantially more 13.9%
Somewhat more 35.8
About the same 47.3
Somewhat less 3.0
Substantially less 0.0
If you have increased your holdings in the past two years or plan to, what reason best explains why?
Looking for more
diversity 67.1%
Expect a rebound in
foreign stock
performance 9.2
Superior long-term
returns 9.2
Globalization of public
businesses 3.9
Other 10.5
What percentage of your
foreign stocks are actively managed?
100 percent 63.8%
75 to 99 percent 11.9
50 to 74 percent 10.6
25 to 49 percent 1.9
1 to 24 percent 4.4
None 7.5
How does that percentage compare with two years ago?
Substantially more 4.4%
Somewhat more 10.1
About the same 78.5
Somewhat less 3.8
Substantially less 3.2
What portion of your
foreign stocks are
managed internally?
100 percent 4.4%
75 to 99 percent 0.6
50 to 74 percent 0.6
25 to 49 percent 0.0
1 to 24 percent 0.6
None 93.8
What performance benchmark do you use for your foreign stocks?
MSCI Europe,
Australasia and
Far East index 88.5%
Another standard
index 9.6
U.S. stock holdings 0.0
Peer group of
managers 7.0
Other 7.0
How does the performance of your actively managed foreign stock portfolio
compare with the performance of your benchmark?
Substantially better 40.7%
Somewhat better 43.3
About the same 12.0
Somewhat worse 3.3
Substantially worse 0.7
What percentage of
your total assets are in
emerging-markets stocks?
None 31.6%
1 to 2 percent 29.1
3 to 5 percent 30.4
More than 5 percent 8.9
If you own emerging-markets stocks, do you treat them as a class separate from your other foreign stocks?
Yes 39.1%
No 60.9
If you own emerging-markets stocks, how long have you owned them?
Less than a year 6.5%
Between one and
three years 31.8%
More than three years 61.7
What percentage of your total assets do you invest in
foreign private equity?
None 80.4%
Less than 2 percent 17.7
More than 2 percent 1.9
What percentage of your total assets do you invest in
foreign real estate?
None 91.7%
Less than 2 percent 7.6
More than 2 percent 0.6
How does the expense of managing foreign assets compare with that of managing domestic assets?
Substantially more
expensive 25.5%
Somewhat more
expensive 56.4
About the same 17.4
Somewhat less
expensive 0.7
Substantially less
expensive 0.0
If you invest in foreign assets, how does the management expense compare with five years ago?
More expensive 8.5%
Less expensive 22.7
About the same 68.8
How satisfied are you with the performance of your
foreign equity?
Very satisfied 33.1%
Somewhat satisfied 61.7
Somewhat dissatisfied 5.2
Very dissatisfied 0.0
Do you expect to increase your allocation to foreign
equity in the coming year?
Yes 80.6%
No 19.4
The results of Pensionforum are based on quarterly surveys of a universe of 800 corporate and 250 public pension plan sponsors. Because of rounding, responses may not total 100 percent.