U.S. pension funds that postponed rebalancing their portfolios are likely to release around $400 billion into stocks over the next two quarters, analysts at JP Morgan stated, offering a potential boost to equity markets rattled by the coronavirus pandemic.
Weeks of asset price volatility may have driven some fund managers to delay rebalancing portfolios where equity allocations have been knocked out of slap by a sharp decline in stocks, the bank stated in a note to investors. The S&P 500 dropped 20% since the beginning of the year, underlining its worst quarter since 2008.
The financial institution stated its estimate of $400 billion in equity buying by the funds over the next two quarters might prove conservative. U.S. pension funds purchased $200 billion in shares by the first quarter of 2009, in the aftermath of the world financial crisis — equivalent to $600 billion in the present day, the bank stated.
Wild market swings have posed a hurdle to asset managers looking to square their portfolios against a benchmark or return to their long-maintained allocation of shares versus bonds. While the S&P is down nearly 24% from its February highs, unprecedented support from the Federal Reserve and a $2.2 trillion aid package from the U.S. senate helped shares rally 15.5% since March 23.
At least one fund — the Los Angeles City Staff’ Retirement System, which manages around $15 billion — is allowing its rebalancing to be deferred, based on a report in Pensions & Investments.