Just as individual investors have put more money into equities in anticipation of rising interest rates — dubbed “the great rotation” by Bank of America — pension funds and insurance companies are investing more heavily in fixed income to match future obligations. Pension plans increased their investments in fixed income or debt to 41.3% in 2012, up from 36% in 2010, according to a JP Morgan/Milliman report profiled by Bloomberg. Those statistics match a recent TowersWatson study on the asset allocation of pension plans.
So the $166 billion of individual investor assets rotating out of bonds and fixed income is being mitigated by institutional money that sees opportunities — yields for investment grade debt have risen to 3.3%, up from 2.65% in May. Jeffrey Gundlach of Doubleline comments that he can’t see older investors continuing to invest in riskier equities. At the same time, insurers and DB plans are preparing for the 78 million baby boomers born between 1946-1964 as they “transition.”
