Even as corporate America confronts one bruising scandal after another, plan sponsors don’t appear to be looking abroad to invest their money. According to this month’s Pensionforum, just 7.1 percent of respondents say they intend to increase their allocation to foreign equity in the coming year.
Still, international stocks have gained additional acceptance among U.S. pension funds during the past two years. Almost 18 percent of respondents say they have increased their foreign stock holdings in that time. More than 75 percent are looking for more diversity in their portfolios; about 15 percent are expecting a rebound in foreign stock performance.
For the most part, funds are comfortable capping their international stock investments at no more than 20 percent of assets; just 7.6 percent of respondents say they invest above that threshold.
Those funds that do invest overseas frequently use active managers; 66.1 percent of respondents say their entire international portfolio is actively managed. Less than 5 percent of respondents have indexed their whole portfolios. For most funds, active management appears to be working: 70 percent say their actively managed stocks performed better than their benchmarks.
To be sure, it costs more money to shop abroad. More than 80 percent of respondents say the costs of managing foreign stocks are higher than running U.S. investments. That said, costs are coming down; 21.6 percent of respondents say the management expense is lower than it was five years ago, while just 6.9 percent say it is higher.
Plan sponsors, however, seem satisfied, whatever the costs: 73.6 percent say they are content with the performance of their international stock investments.
What percentage of your total assets are in foreign stocks?
None 4.5%
1 to 5 percent 10.6
6 to 10 percent 25.8
11 to 15 percent 31.8
16 to 20 percent 19.7
More than 20 percent 7.6
How does that percentage compare with that of two years ago?
Substantially more 3.1%
Somewhat more 14.6
About the same 67.7
Somewhat less 13.8
Substantially less 0.8
If you have increased your holdings in the past two years or plan to, what reason best explains your decision?
Looking for more diversity 76.9%
Expecting a rebound in foreign stock performance 15.4
Superior long-term returns 7.7
Globalization of public businesses 0.0
Other 0.0
If you have decreased your holdings in the past two years or plan to, what reason best explains your decision?
Poor returns in foreign stock portfolio 33.3%
Overweighted in foreign stock 19.0
Other asset classes are more attractive 33.3
Instability in global affairs 4.8
Other 9.5
Do you expect to increase your allocation to foreign equity in the coming year?
Yes 7.1%
No 92.9
What percentage of your foreign stocks are actively managed?
100 percent 66.1%
75 to 99 percent 15.0
50 to 74 percent 11.0
25 to 49 percent 2.4
1 to 24 percent 0.8
None 4.7
How does that percentage compare with that of two years ago?
Substantially more 5.6%
Somewhat more 6.3
About the same 84.1
Somewhat less 4.0
Substantially less 0.0
What portion of your foreign stocks are managed internally?
100 percent 0.8%
75 to 99 percent 0.8
50 to 74 percent 1.6
25 to 49 percent 2.4
1 to 24 percent 1.6
None 92.9
What performance benchmark do you use for your foreign stocks?
MSCI Europe, Australasia and Far East index 72.4%
Another standard index 22.0
U.S. stock holdings 0.0
Peer group of managers 1.6
Other 3.9
How does the performance of your actively managed foreign stock portfolio compare with the performance of your benchmark?
Substantially better 26.7%
Somewhat better 43.3
About the same 14.2
Somewhat worse 14.2
Substantially worse 1.7
What percentage of your total assets are in emerging-markets stocks?
None 39.1%
1 to 2 percent 27.3
3 to 5 percent 26.6
More than 5 percent 7.0
If you invest in foreign assets, how does the management expense compare with that of five years ago?
More expensive 6.9%
Less expensive 21.6
About the same 65.5
Did not invest in foreign stocks five years ago 6.0
How does the expense of managing foreign assets compare with that of managing domestic assets?
Substantially more expensive 11.5%
Somewhat more expensive 70.5
About the same 17.2
Somewhat less expensive 0.8
Substantially less expensive 0.0
How satisfied are you with the performance of your foreign equity?
Very satisfied 14.4%
Somewhat satisfied 59.2
Somewhat dissatisfied 23.2
Very dissatisfied 3.2
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.
