Survey: With US Equities Unpopular, Corporate Bonds and Emerging Markets Hot

(November 19, 2009) – A new report is claiming that 30% of large United States pension funds, endowments, and foundations are planning to increase their exposure to highly graded corporate bonds in 2010.

According to the study, conducted for Bank of America Merrill Lynch in September and October, only 16% of surveyed funds plan to reduce their exposure to such investment vehicles. Forty-eight percent are planning no changes in such allocations, while 6% are undecided. With just six weeks left in the year, corporate bonds have been some of the most stellar performers among any asset, with a 19.3% growth, the highest since 1995—possibly a result of such large funds moving into the asset class following severe equity losses in 2008.

In conjunction with the move toward corporate bonds, the survey found a decreased willingness to invest in U.S. equities. Thirty-nine percent of the funds surveyed disclosed plans to reduce their exposure to this asset class, which, despite a solid 2009, has harmed portfolios worldwide since the 2008 downturn. In turn, 42% of those polled expressed a willingness to increase their exposure to emerging market equities.

This projected shift toward high-grade corporate bonds could be a boon for the asset class. With more than $6.2 trillion in assets managed by such funds in America, even small allocation changes can raise or lower the demand for certain assets considerably.

The survey respondents included 111 funds, with a total of more than $1 trillion in assets under management.