Safe is sexy again.
Thanks to an unrelenting bear market, plan sponsors have sought refuge in bonds and other fixed-income products, according to this month’s Pensionforum.
Nearly 30 percent of respondents say their allocations to fixed-income securities are higher than they were a year ago. Those allocations are fairly high: 57.4 percent of respondents say that more than 30 percent of their portfolios are allocated to fixed-income products. Only 9.1 percent, however, say they expect to increase their fixed-income allocations in the coming year. Those who do intend to up their investments in the asset class won’t do so by very much: 80 percent say the increase will be 10 percent or less.
Overall, although funds appear to prefer investment-grade securities -- 84.2 percent say such securities represent 80 percent or more of their fixed-income portfolios -- there does seem to be some appetite for risk. Twenty-four percent of respondents report holdings in high-yield bonds, of 6 percent or more of their fixed-income portfolios. Nearly 13 percent of respondents report that their allocations to high yield are higher than they were a year ago. And 34.7 percent of respondents say they have investments in emerging-markets debt; 38.6 percent invest in Eurodollar bonds.
Fixed-income products other than traditional bonds appear to have at least some appeal. More than 72 percent of respondents say they invest in commercial-mortgage-backed securities, and 30.7 percent say their funds invest in swaps or other derivatives.
The fixed-income strategies, in whatever form, appear for the most part to be working: 64.6 percent of respondents say their portfolios either matched or outperformed their benchmarks. Given today’s environment, that’s not bad at all.
What percentage of your fund’s total assets is in fixed-income securities?
0 to 20 percent 8.9%
21 to 30 percent 33.7
31 to 40 percent 41.6
41 to 50 percent 15.8
More than 50 percent 0.0
How does that compare with the percentage of a year ago?
Substantially higher 5.0%
Somewhat higher 23.8
About the same 65.3
Somewhat lower 5.9
Substantially lower 0.0
How much of your fund’s fixed-income portfolio is in investment-grade-rated securities?
100 percent 31.7%
80 to 100 percent 52.5
60 to 80 percent 7.9
40 to 60 percent 5.9
Less than 40 percent 2.0
How does that compare with the percentage of a year ago?
Substantially higher 1.0%
Somewhat higher 4.0
About the same 88.1
Somewhat lower 6.9
Substantially lower 0.0
How much of your fund’s fixed-income allocation is in high-yield bonds?
None 43.0%
Less than 2 percent 11.0
2 to 5 percent 22.0
6 to 10 percent 15.0
More than 10 percent 9.0
How does that compare with the percentage of a year ago?
Substantially higher 0.0%
Somewhat higher 12.9
About the same 80.2
Somewhat lower 6.9
Substantially lower 0.0
What is the average duration of the bonds in your fund’s portfolio?
Two years or less 3.0%
Three to five years 70.0
Six to ten years 22.0
More than ten years 5.0
Over the past year, has the duration:
Increased? 8.1%
Decreased? 28.3
Stayed the same? 63.6
Does your fund have any investments in commercial-mortgage-backed securities?
Yes 72.3%
No 27.7
Does your fund have any investments in Eurodollar bonds?
Yes 38.6%
No 61.4
Does your fund hold any swaps or other derivatives in its fixed-income portfolio?
Yes 30.7%
No 69.3
Does your fund have any investments in emerging-markets debt?
Yes 34.7%
No 65.3
If your fund has any investments in the previous four securities (CMBS, Eurodollar bonds, swaps or derivatives or emerging-markets debt), do any of them amount to 3 percent or more of the total fixed-income portfolio?
Yes 32.1%
No 67.9
What percentage of your fund’s total portfolio is in international fixed income?
None 56.4%
Less than 2 percent 17.8
3 to 5 percent 13.9
More than 5 percent 11.9
How did your fund’s total fixed-income portfolio do against its fixed-income benchmark in your most recent fiscal year?
Did better 43.4%
Did worse 35.4
Performed as well 21.2
Do you expect to increase your fund’s allocation to fixed income in the coming year?
Yes 9.1%
No 90.9
If so, by how much?
Less than 5 percent 60.0%
6 to 10 percent 20.0
More than 10 percent 20.0
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.
