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The world’s biggest asset managers could unload around $150 billion in equities by the end of June, with the money set to flow into bonds, driven by month- and quarter-end rebalancing, according to analysts at JPMorgan Chase & Co.
After several quarters where global stocks and bonds moved the same direction, the MSCI World Index has seen quarter-to-date returns of 5.4%, while the Bloomberg Global Aggregate Bond Index has seen returns of -1.4%, the analysts, led by Nikolaos Panigirtzoglou, said in a Thursday note.
The analysts see the rebalancing running in favor of bonds as balanced mutual funds, sovereign-wealth funds, pension funds and other money managers make shifts to meet allocation requirements. Large pension funds typically keep a 60% stock/40% equity mix.
Breaking it down, they said the relative performance of equities and bonds imply balanced mutual funds would engage in around $31 billion of equity buying into the end of the month, with a similar amount of bond selling.
For other players, the flow is seen going the other way. The analysts estimated that Norway’s $1.3 trillion oil fund could see net equity sales of $18 billion, though if net oil revenues are invested equally across quarters and by their end-2022 asset weights, the net equity sales would be reduced to just $6 billion.
They estimated that the Swiss National Bank, which invests a portion of its forex reserves in equities, would need to sell around $11 billion of global equities by quarter-end. Japan’s $1.5 trillion government pension fund would need to sell around $37 billion of equities and buy an equivalent amount of bonds to rebalance its portfolio allocations, the analysts said.
U.S. defined-benefit pension plans, with assets under management of around $8.5 trillion, tend to balance more slowly over one to two quarters, the analysts said.
If they were fully rebalanced at the end of March, given the quarter-to-date performance of equities and bonds, U.S. defined-benefit plans could see net selling of $185 billion in equities and similar net buying of bonds, they estimated. The analysts noted, however, that pension funds are less strict when it comes to rebalancing, which means the full $185 billion of estimated equity selling is unlikely to materialize in full. Based on that and previous behavior by pension funds, the analysts expect around a third of that rebalancing flow to take place ahead of quarter-end.