(May 12, 2014) — The New Jersey public pension plan has been gradually reducing its exposures to emerging market exchange-traded funds (ETFs) since last year, the NJ Division of Investment has confirmed.
According to the $76.8 billion fund’s reports, it slashed its developing-nation ETFs from more than $3.2 billion in the fiscal year ending June 30, 2012, to less than $1.8 billion by March 31, 2014.
“The decline in emerging market ETFs has been largely due to a decision to reduce overall holdings in emerging market stocks,” Chris Santarelli, spokesperson for the New Jersey Treasury Department, told aiCIO. “This is also in line with a decision to move from passive to active strategy in managing developing market investments.”
Specifically, the Trenton-based fund cut its holdings in Vanguard’s MSCI Emerging Markets index from $1.8 billion in 2012 to just $109 million as of March this year. It also trimmed down its $478 million holdings in iShares MSCI Emerging Markets index reported in 2012 to $145 million by June 30, 2013.
Overall allocations to emerging market equities has also been steadily decreasing in the past few years, the fund reported.
The NJ pension director’s February investment reports revealed a total allocation of 6.56% to emerging markets equity, down from 7.42% in September of 2013. These percentages were below the target allocation of 8% stated in these reports, spokesperson Santarelli confirmed the target allocation for emerging market equities had been recently cut to just 6.5%.
Despite the fund’s overall outperformance, its emerging market equities allocation has lagged. According to its September reports, emerging market equities returned 5.05% for the fiscal year, below a benchmark of 5.35%. Low returns persisted, as shown in the most recent February reports, with the asset class returning 3.32% year-to-date, again underperforming its benchmark of 3.75%.
The New Jersey pension fund was not alone in cutting exposure to emerging markets, according to data provided by Bloomberg. There had been outflows of $12 billion from Vanguard’s FTSE Emerging Markets ETF and $12.8 billion from BlackRock’s iShares MSCI Emerging Market ETF since December 2012.
However, emerging markets may be experiencing a comeback, Bloomberg found, with a total of $4.6 billion flowing into the two funds since the end of March this year.
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