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Strategies & Market Trends : Zeev's Turnips - No Politics -- Ignore unavailable to you. Want to Upgrade?

To: jjstingray who wrote (73567)	5/31/2002 10:12:07 PM
From: SBHX	Respond to of 99280

Well, if the bigger pension funds start to liquidate their holdings what will happen? This article says that Ontario's teachers pension plan is liquidating up to 3B of their 70B fund. edit:::(apologies to George S Cole who posted this earlier today) Message 17539345 Is this an isolated incident or an indication of things to come? The article states specifically that Teachers consider the NA market to be overvalued. The main stocks under pressure might be (?) : Calpine Corp., Bank One Corp. and Washington Mutual Inc. and big cap canadian stocks. nationalpost.com Teachers turns sour on stocks Pension titan may sell up to $3B of holdings on fears stocks may underperform for most of decade Derek DeCloet and Sean Silcoff Financial Post One of Canada's largest pension funds is shrinking its portfolio of blue-chip North American stocks because its managers believe equities will produce dismal returns for most of the decade. The Ontario Teachers' Pension Plan is selling some of its $10-billion of U.S. stock holdings and reducing its exposure to large-cap Canadian firms because they are overvalued, said Leo de Bever, senior vice-president of research and economics of the $70-billion fund. "What could happen is a situation like the 1970s, where you had a poor return on equities for about eight years in a row," he said. Mr. de Bever said his thinking is based in part on Irrational Exuberance, a book by Robert Shiller, an economics professor at Yale University. Mr. Shiller presents evidence that when price-to-earnings ratios are high -- as they are now, by historical standards -- stocks perform poorly for long periods. Teachers' owned $41.4-billion in shares as of the end of 2001, representing 60% of the pension fund's assets. Mr. de Bever said the pension fund's equity allocation could drop as low as 55%, temporarily -- which would be a decline of about $3-billion -- "mostly because we're pulling out of the U.S. market." About 15% of Teachers' assets were U.S. stocks as of December 2001; Mr. de Bever said that could drop to "something close to 10%" because "the U.S. market, to us, looks the most overvalued." The Standard & Poor's 500 composite index has dropped 30% since reaching a record high in March 2000. But the index still trades at about 40 times earnings. "It doesn't make a lot of sense to have a huge amount of your assets in equities if the bond market is going to give you equal returns," said Brian Gibson, Teachers' senior vice-president of active equities. "The best case we can come up with is equities might match bonds over the next three to five to seven years. So why would you take the risk?" The pension fund will redeploy the money into several other areas, said Mr. de Bever. It will probably increase its investment in private companies, in infrastructure projects and in emerging markets and Europe, he said. Teachers' will also bolster its efforts in trying to actively pick undervalued stocks, while reducing its exposure to so-called "passive" portfolios that mimic major stock indexes. "The way we'll deal with that is we will either short markets or specific stocks [that are expensive] and use that money to buy cheap ones," said Mr. Gibson. That will mean an increased focus on investing in smaller companies. "The big caps are overvalued, the tech stocks are overvalued. [But] we probably will be able to find stocks underneath the index level that give us the right risk-to-reward ratio," said Mr. de Bever. Another large institutional investor said Teachers' is not alone in pulling some money out of the market. "I have heard from people who talk to a lot of buy side investors that people don't have a lot of conviction in their holdings these days," said the manager, speaking on condition of anonymity. "You have telecom and technology, which people are steering clear of now. Then there are the safer consumer stocks, like Loblaw, Molson and Canadian Tire. People perceive those to be safe, but I think some people believe the stocks are getting ahead of themselves. There's just not a lot of places to put your money right now to feel good about." Teachers' pessimism is in contrast to the approach the pension fund took last fall, when stock markets were hitting new lows after the September terrorist attacks. Then, it bought stocks and took advantage of an autumn rally, which is one reason it showed only a small loss of -2.3% last year. The pension fund's top Canadian stock holdings, as of Dec. 31, were energy producer Nexen Inc. ($626-million), Royal Bank of Canada and Nortel Networks Corp. (both almost $500-million). In the United States, it is a significant shareholder in Calpine Corp., Bank One Corp. and Washington Mutual Inc., among others. TEACHERS PENSION FUND: EQUITIES (AS OF DEC. 31, 2001, $BILLIONS): Canadian: $17.1 Non-North American: $13.8 U.S.: $10.5 ASSET MIX (PERCENT): Equities: 60% Inflation-sensitive: 22% Fixed Income: 18% Source: Teachers' Pension Plan Board