The following information is courtesy of Neil Azous at Rareview Macro.
Quarterly Pension Rebalance Calls: Stocks are for sale, and bonds are being bought. Below is commentary on pension rebalancing from three financial institutions.
1. Goldman Sachs (NYSE:GS): For the second quarter of 2014, equities outperformed fixed-income by +3.74%. As a result, quarterly rebalancing flow estimates are -$7.67 billion in equities for sale. Also, for the month of June, the S&P 500 (INDEXSP:.INX) has outperformed US Treasury notes by +3.00%. The S&P 500 total return has returned +2.16%, and the 10-year total return has been -0.84%. This results in monthly estimated rebalancing flow of -$6.30 billion of equities for sale. Goldman Sachs saw one "trigger" event on June 9, with equities cumulatively outperforming fixed income by a 6% spread up to that date, leading to a net -$10.88 billion of equities for sale. Note that Goldman's assumption is that trigger rebalancing occurs at or around the time of event.
2. UBS AG (NYSE:UBS): As has been the norm in the QE era, UBS expects US pensions to sell stocks and buy bonds during the second quarter quarter-end portfolio rebalancing. UBS's model projects a moderate $19 to $22 billion of equity sales versus just under $10 billion of bond purchases. Furthermore, within equity portfolios, UBS sees the bulk of trimming ($12 to $15 billion) in US large cap stocks. Small cap, developed markets, and emerging market portfolios should see only marginal flows. On the fixed income side, UBS expects rebalancing purchases to affect mostly five to 10-year maturities. The 10-year area should outperform cash while flows are going through.
3. Societe Generale SA (EPA:GLE): The S&P 500 index has outperformed 10-year Treasuries by 3% month to date and 3.7% quarter to date. SocGen's model estimates $20 billion in equity-selling and bond-buying pension rebalancing demand at month end. The model also estimated there was about $17 billion in equity-buying and bond-selling market flow during the equity market rally this month.
I think this will weigh on equities through this coming Monday.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.