J.P. Morgan Asset Management Japan Corporate Pension Funds ... · Asset allocation: Portfolio...
Transcript of J.P. Morgan Asset Management Japan Corporate Pension Funds ... · Asset allocation: Portfolio...
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J.P. Morgan Asset Management
Japan Corporate Pension Funds Survey Report 2016
Japan Corporate Pension Funds Seek Sophistication in Lower Return Environment
JPMorgan Asset Management (Japan) Limited
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General Description
Purpose
Respondents
Survey Timing
Methodology
This survey was conducted to evaluate how investment management is evolving at Japanese corporate pensions
123, mainly defined benefit pension funds
This includes 121 defined benefit pension funds, 2 mutual aid pension funds
March 2017 to June 2017
Interview
Others
In this survey report, information about fiscal year 2017 may include estimation, even if it is stated as “actual”.
Unless otherwise stated, information source is JP Morgan Asset Management Japan.
This is an excerpt of our survey translated to English. The full-length report is in Japanese.
FY2016 is Japanese fiscal year starting from April 1, 2016 to March 31, 2017. Same applies to other fiscal years.
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Respondents
(JPY) Defined Benefit Others Total
Au
M
More than 300bn 5 1 6
More than 100bn-
Less than 300bn 33 1 34
More than 50bn –
Less than 100bn 30 30
Less than 50bn 49 49
Not disclosed 4 4
Total 121 2 123
4.9% 27.6% 24.4% 39.8% 3.3%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
資産規模別
More 100 bn
Less 300bn More 50bn
Less 100bn Less 50bn Not-Disclosed More
300bn
By AuM
(JPY)
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Key Findings
Measures to cope with “low return environment” continue
The fund management environment around Defined Benefit (DB) corporate pension funds continues to be challenging on the back of the introduction of a negative interest rate policy and yield curve control, a sharp increase in market volatility, rising hedge costs in the US and so on.
Asset allocation: Portfolio management under four traditional asset classes loses substance. Nature of portfolios gradually moves toward “economic-neutral” type
In asset allocation, domestic bonds fell to 27.9%, the lowest since the start of the survey in FY2008, probably on the back of the BOJ’s negative interest rate policy and an outlook that the low-interest rate environment will be prolonged. Alternative assets rose to 16.5%, the highest since the start of the survey.
Portfolio management under the four traditional asset classes (domestic bonds, domestic equities, foreign bonds and foreign equities), which was dominant in DB corporate pension funds, is losing ground. Factors behind this are considered to be a high correlation between domestic and foreign equities through foreign exchange rates, diversification in financial instruments led by alternative assets, the introduction of the negative interest rate policy, a higher correlation between equities and bonds in the so-called “market led by monetary stimulus,” and spread of bond substitute instruments.
Looking at portfolios, many assets and strategies have a relatively low sensitivity to economic fluctuations and account for certain sizes. While traditional equities and bonds are seen as “sensitive to economic fluctuation,” the assets and strategies supported in recent years are “neutral towards economic fluctuation.”
Separate strategies: Measures to cope with the negative interest rate policy and the rise in hedge costs made progress. In alternative assets, strategy changes advanced, focusing on income gains and lower correlations
About 80% of DB corporate pension funds answered, “The asset management environment has changed (will change) since the introduction of the negative interest rate policy,” and many said the current environment was challenging in terms of securing returns. Many took countermeasures using individual instruments, not by changing overall policy asset mix(AM).
In FY2016, measures to cope with the rise in hedge costs in the US made progress. Many used Euro-denominated assets and bond futures and adopted currency overlays.
Adoption of alternative assets continues. Though some DB corporate pensions are concerned by high valuations, many are looking to reduce risks and for stable income gains.
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Asset Allocation
Portfolio Management under four traditional asset classes loses traction. Portfolios are gradually moving
towards “economic-neutral” stance.
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Press Material Change in asset allocation: Domestic bonds may continue to be below 30% as Alternatives remain sole winner
Note: For pension funds setting up a “global category” with no breakdown into domestic and foreign categories for the asset c lass setup, “Global equities” are classified as “Foreign equities” and “Global bonds” into “Foreign bonds” for the purpose of data consistency. Figures may not add up to 100% due to rounding.
In FY2016, the recent trend of “falls in domestic bonds and overall equities, with a rise in alternatives” is confirmed.
Specifically, domestic bonds fell to 27.9%, the lowest since the launch of the survey in FY2008, probably backed by the BOJ’s
negative interest rate policy and an outlook that the lower interest rate environment will be prolonged. Meanwhile, alternatives rose to
16.5%, the highest level since the start of the survey.
1.2%
1.5%
1.3%
1.0%
0.9%
13.6%
11.7%
11.8%
11.7%
13.2%
27.9%
29.8%
30.3%
34.1%
35.4%
6.2%
6.6%
4.6%
5.4%
4.7%
13.0%
12.0%
14.6%
11.3%
10.2%
16.5%
15.6%
12.8%
11.4%
9.1%
7.9%
8.3%
9.1%
10.4%
11.1%
13.7%
14.5%
15.5%
14.7%
15.5%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
2017年3月末
回答数:95
2016年3月末
回答数:75
2015年3月末
回答数:90
2014年3月末
回答数:93
2013年3月末
回答数:88
政策
AM
Foreign bonds, hedged Domestic bonds General a/c Cash Domestic equities Foreign bonds Foreign equities Alternatives
3.4%
3.1%
16.2%
13.6%
21.8%
26.4%
10.0%
8.8%
9.8%
10.0%
16.6%
15.0%
8.7%
8.9%
13.6%
14.2%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
2017年3月末
回答数:76
2016年3月末
回答数:70
実績
Asset Allocation (Policy AM)
Asset Allocation (Actual)
Foreign bonds, hedged Domestic bonds General a/c Cash Domestic equities Foreign bonds Foreign equities Alternatives
FY2012
FY2013
FY2014
FY2015
FY2016
FY2015
FY2016
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Asset allocation by size of assets: Fall in domestic bonds may continue
Note: As pension funds not disclosing their asset sizes are not included in this table, the numbers of respondents may not match those in other pages. Figures may not add
up to 100% due to rounding. The expected return is a simple average.
The ratio of domestic bonds fell below 20% in DB corporate pensions with JPY 200 billion or more. In the past surveys, large DB
corporate pensions determine trends of asset allocation and adoption of new instruments. Based on these, the fall in domestic bonds
may continue.
The ratio of alternatives is high in a broad range of DB corporate pensions irrespective of the asset size, probably due to the relaxed
regulation around the minimum investment amount. This indicates the spread of alternative investments.
1.6%
1.1%
0.5%
0.5%
14.8%
12.7%
11.7%
12.9%
27.3%
36.3%
26.1%
19.2%
4.9%
5.5%
10.9%
7.2%
11.4%
11.3%
12.7%
20.6%
18.9%
9.5%
18.4%
17.6%
7.9%
10.3%
5.0%
6.8%
13.1%
13.2%
14.7%
15.1%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
500億未満
500-1,000億
1,000-2,000億
2,000億以上 2.01%
2.46%
2.32%
2.56%
Target
Return
Asset allocation by size of assets (Policy AM)
Foreign bonds (hedged) Domestic bonds General a/c
Cash Domestic equities
Foreign bonds Foreign equities Alternatives
More than ¥200bn
Less than ¥200bn
Less than ¥100bn
Less than ¥50bn
(JPY)
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Efficient allocation to safe assets and risk assets in line with target return
In the past, the higher the target return, the higher the allocation to alternatives. This year, however, ratios of assets allocated to
alternatives are at similar levels for most target return levels due to the spread of alternative investments and diversification of
alternative strategies.
However, assets and strategies within alternatives differ significantly among DB corporate pension funds. (See page 9 and later).
Source: (right) J.P. Morgan Asset Management “Long-Term Capital Market Assumptions 2017”
Note : (left) Figures may not add up to 100% due to rounding. (right) The outlook over the next 10-15 years.
0.4%
1.1%
1.0%
2.6%
26.8%
14.8%
11.0%
10.4%
25.0%
30.8%
27.4%
26.6%
41.0%
8.3%
6.2%
5.9%
4.5%
15.8%
9.6%
12.1%
15.5%
11.3%
6.0%
14.8%
14.7%
16.2%
21.8%
6.8%
5.0%
7.9%
8.6%
7.8%
11.0%
10.2%
12.5%
14.4%
15.1%
19.5%
0% 25% 50% 75% 100%
2%未満
回答数:13
2%以上~2.5%未満
回答数:20
2.5%以上~3%未満
回答数:44
3%以上~3.5%未満
回答数:16
3.5%以上
回答数:2
政策
AM
General a/c Foreign equities
Domestic bonds
Cash
Foreign bonds
Alternatives Foreign bonds (hedged)
Domestic equities
More than 3.5%
Less than 3.5%
Less than 3%
Less than 2.5%
Less than 2%
As of end-September 2016 ※As Alternatives are assets for which degrees of manager skills differ significantly, a certain latitude should be given for both expected return and assumed risk
Asset allocation by target return: Ratio of Alternatives flattening
Asset allocation by target return(Policy AM) Expected return/assumed risk for each asset
by J.P. Morgan Asset Management
Exp.
Return Risk Efficiency
Domestic bonds 0.25% 2.00% 0.13
Domestic equities 4.75% 19.25% 0.25
DM Hedged bonds 0.75% 3.50% 0.21
Global Aggs 1.50% 8.25% 0.18
DM Equities 5.50% 19.75% 0.28
US real estate 4.50% 14.75% 0.31
Global infra. 5.25% 14.75% 0.36
Private equities 7.00% 24.50% 0.29
Fund of HF 2.50% 14.50% 0.17
US REIT 5.00% 19.00% 0.26
US High Yield 4.75% 13.75% 0.35
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Change in asset allocation: Alternatives come next to domestic bonds
Note: Figures may not add up to 100% due to rounding,
We classify DB corporate pensions into those that 1) have invested in Alternatives and 2) have not.
In DB corporate pensions that have invested in alternatives, the ratio of alternatives is close to 20%, ranked next to domestic bonds. Alternatives, which have started as “the fifth asset class,” become a more major asset class than the four traditional assets.
However, strategies within alternatives differ significantly among DB corporate pensions, and so do expected returns and assumed risk. Some are employing methods to fractionalize management categories according to characteristics of each strategy for alternatives (see pages 15).
1.2%
1.7%
0.9%
0.6%
13.7%
10.2%
13.1%
20.5%
25.4%
29.1%
40.7%
33.6%
19.8%
18.3%
7.2%
7.5%
1.5%
1.6%
12.1%
11.6%
17.6%
14.6%
7.3%
7.8%
11.0%
11.7%
13.3%
13.9%
15.3%
17.4%
0% 25% 50% 75% 100%
2016年3月末
2015年3月末
2016年3月末
2015年3月末
オルタナあり
オルタナなし
Foreign bonds (hedged)
Domestic bonds General a/c Cash Domestic equities Foreign bonds Foreign equities
Alternatives Foreign bonds Domestic equities
Foreign bonds (hedged)
Domestic bonds General a/c Cash Foreign bonds
No
t h
avin
g A
lter
nat
ives
H
avin
g A
lter
nat
ives
FY 2015
FY2016
Asset Allocation (Policy AM)
FY 2015
FY2016
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3.9%
5.1%
2.5%
2.0%
1.6%
1.6%
0.7%
0.8%
2.1%
1.5%
2.0%
1.5%
1.0%
0.7%
0.9%
0.5%
0.8%
0.5%
1.0%
0.9%
0% 5% 10% 15% 20%
2017年3月末
2016年3月末
実績
Absolute
Return
(FoF type)
Multi
Asset
Real Estate
REIT PE
Infra Insurance
Equities Long-Short
Private Debt
Absolute Return
(Equity & bond type)
FY2015
FY2016
Details of Alternatives: Prudent stance seen in separate strategies
※The definition of each category is as follows. The categories
above are simplified ones to grasp tendencies:
Low Correlation: absolute return, multi-asset, insurance and
equities long-short
High Income: REIT, real estate, infrastructures and PD
Others: private equities
10.9%
11.0%
4.7%
3.2%
1.0%
0.9%
0% 5% 10% 15% 20% 25%
2017年3月末
2016年3月末
High
Income Others
Low
Correlation
FY2015
FY2016 Total
16.6%
Total
15.0%
Total 16.6%
Total 15.0%
Note: (left and right) Including estimates by J.P. Morgan Asset Management (The answers of “Alternatives in general” are reallocated to allocation by individual alternatives
asset). Accumulated figures may not be equal to the total shown in the chart due to rounding.
Details of alternatives show a significant allocation to an Absolute Return type (FoF type) due partly to past experiences. Though this type represents assets which are expected to show low correlations with the four traditional assets, it tends to decrease in recent years due to heightened correlations and sluggish performance. On the other hand, insurance tends to increase.
At the same time, more are allocating their resources to private REITs, real estate and infrastructure assets due to the concept of “income investment” and low volatility. As a new income strategy, an increasing number of respondents have considered adopting private debt, which is apparently supported due to short investment periods.
On an average, DB corporate pensions hold 3.8 of the 10 strategies below. showing that different alternative strategies are being mixed together. For the number of strategies and their combinations, please see pages 19-20.
Asset allocation to Alternatives (Actual) Asset allocation by Alternatives category
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Alternatives by target return: Various strategies
8.1%
6.4%
6.0%
7.5%
2.8%
0.5%
1.9%
1.6%
1.4%
0.6%
0.4%
1.8%
1.9%
3.2%
2.4%
1.0%
0.9%
0.4%
1.1%
1.4%
1.8%
2.0%
2.3%
1.9%
0.4%
1.6%
0.9%
0.4%
1.4%
1.2%
0% 5% 10% 15% 20% 25%
2%未満
回答数:8
2%以上~2.5%未満
回答数:17
2.5%以上~3%未満
回答数:37
予定利率 3%以上
回答数:14
Absolute Return Multi
Asset Real
Estate
REIT
Infra
Multi
Asset Insurance
Insurance
REIT Insurance
Absolute Return
REIT Insurance Multi
Asset
More than 3%
Less than 3%
Less than 2.5%
Less than 2%
Eq LS
Total
19.1%
Total
16.6%
Total
14.9%
Total
15.8%
Private Debt
PE
Note: DB corporate pensions that have invested in Alternatives are covered. Labels for asset classes with a small allocation ratio may be omitted. Accumulated figures may
not be equal to the total shown in the chart due to rounding.
As a general tendency, weights of REITs, real estate, infrastructures and PE increase as their target returns rise.
Multi-asset and insurance strategies are adopted to a certain extent regardless of target return levels. For multi-asset instruments,
different funds are seen seeking different return levels. For insurance, a low correlation with traditional assets is expected and the
restraint on investment amounts may affect the allocation weight.
Asset allocation to Alternatives by target return (Actual)
Real
Estate
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2.84%
2.78%
2.73%
2.55% 2.56% 2.51%
2.40%
2.20%
2.40%
2.60%
2.80%
3.00%
'11 '12 '13 '14 '15 '16 '17
Outlook for asset allocation: Will cuts to target return be resumed?
2.71%
5.23%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
'09 '10 '11 '12 '13 '14 '15 '16 '17
Expected return
Assumed risk
The target return, which had remained above 2.5% since FY2014, fell slightly in the this year’s survey. Funds that lowered their target
return levels accounted for 9% of the total, and some of them used high-level surplus as the resource.
While the low interest rate environment is expected to be protracted due to the BOJ’s yield curve control policy, target return levels
may enter a moderate downtrend again. In fact, 9% of respondents will consider lowering their target returns.
Target return Expected return and assumed risk
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Outlook for asset allocation: Market environment seen by DB pensions
Note (left): Of the moves in the financial market, there were no questions on “rises in equities etc. on Trump’s policies,” “protectionism on Trump’s policies” and “Brexit and
instability in European…” in FY2015.Source : (right): J.P. Morgan Asset Management “Long-Term Capital Market Assumptions 2017”
75%
53% 47%
29%
18% 13%
10% 8%
70%
79%
43%
32%
22%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2016年度末 2015年度末 FY2016 FY2015
BOJ’s
negative
rate policy,
prolonged
low interest
rates
Rapid
rise in
volatility
Pace of US rate rises,
rise in currency hedge costs
Yen’s
apprecia
tion risk
Rises in equities
and rates on Trump’s
policies
Rise in protectioni
sm on Trump’s policies
Brexit and instability
in European
politics
Hard landing of
China, debts in
emerging economies
Moves in the financial market seen “as key issues in asset management” (incl. multiple answers)
DB corporate pensions are most conscious of domestic bonds due to the negative interest rate policy and yield curve control. The lower return environment is expected to continue as low growth of the global economy, including Japan, is anticipated.
Due to relatively high levels of investments in foreign bonds, interest in “the pace of interest rate rises in the US and a rise in currency hedge costs” remains high - in line with last year.
Looking at responses on President Trump’s policies, DB corporate pensions are not focused on “rises in equities and interest rates related to Trump’s policies” and “protectionism” as they are unable to make a clear decision due to uncertainties.
Respondents who are most conscious of “a rapid rise in volatility” account for 53%, down from last year.
0%
2%
4%
6%
8%
10%
12%
14%
16%
'98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24 '26
Return from portfolio with a 6:4 ratio of equities and bonds (Estimate by J.P.Morgan Asset Management, 10-year rolling, annual rates)
Actual
return Estimate
Recession
As of September 2016
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Press Material Outlook for asset allocation: Gradual progress towards “economic-neutral” portfolio
0%
10%
20%
30%
40%
50%
60%
2012 2013 2014 2015 2016
Reduce risk levels
in portfolio
Reduce
ratio of
domestic
equities
Ratios of DB corporate pensions that answered following as “future measures”
Prices rise when economy expands
Prices rise when economy expands
High risk Low risk
DM
Bonds yen-
hedged
Equities
Invest
ment-
grade
bonds
Mortgages
High-yield
bonds
Minimum
variance Real estate
and infrastructure
equity
(FY)
Multi
Asset
Unconstrained bonds
Since 2008, DB corporate pensions have looked to reduce risk, mainly in domestic equities. However, in the past five years, the number of pension funds that chose future measures aimed at “reducing risk levels in portfolios” and “lowering the weight of domestic equities” has continued to decrease. After several years, risk control measures from the standpoint of volatility, have paused.
Contributing to measures aimed at lower volatility have been low-liquidity assets and strategies such as minimum variance. The portfolios show a tendency that pensions adopt assets and strategies with relative ow sensitivity to economic fluctuations and they do not focus on assets yielding big returns when the economy expands or recedes (such as equities and bonds). If traditional equities and bonds are seen as a “economic-sensitive” type to economic fluctuation, the assets and strategies supported in recent years are an “economic-neutral” type.
Mapping image of assets and strategies
Insurance
*Items in double orange lines
are assets and strategies
supported in recent years.
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Outlook for asset allocation: Portfolio Management of 4 traditional assets lose ground
Classification of Policy AM
25%
31%
23%
39%
33%
23% 20%
15%
9%
13%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Ratios of DB corporate pensions
that reviewed/will review Policy AM (by fiscal year)
Going Forward 11%
3%
13%
6%
6%
17%
44%
グローバル株債枠を両方採用
グローバル債券枠のみを採用
グローバル株式枠のみを採用
安定資産・収益追求枠
その他の新枠組み
国内債券枠の中にヘッジ外債
/一般勘定を組み入れ
伝統4資産(+オルタナ)
Adopt both global equity-bond framework Adopt only global bond framework Adopt only global equity framework Stable asset-seeking income framework Other new framework
Portfolio management under the four traditional asset classes (domestic bonds, domestic equities, foreign bonds and foreign equities), which was dominant in DB corporate pension funds, is losing ground.
Factors behind this are considered to be a high correlation between domestic and foreign equities through foreign exchange rates, diversification in financial instruments led by alternative assets (the adoption of economic-neutral instruments), the introduction of the negative interest rate policy, a higher correlation between equities and bonds in the so-called “market led by monetary stimulus, ” and spread of substitute instruments. Particularly in FY2016, the introduction of the negative interest rate policy made DB pensions reconsider investments in domestic bonds, leading to setting “frameworks of global bonds/equities-bonds.”
DB corporate pensions that review their policy AM account for 10-30% a year. Moreover, portfolio management under the four traditional assets may lose further ground in future.
Management using other assets
than the 4 traditional ones: 39%
Management under the 4 traditional assets: 61%
Include hedged foreign bonds/general a/c in domestic bond framework 4 traditional assets (+alternatives)
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Outlook for asset allocation: continuation or revolution
Equities Bonds Low Corr Income
High Liquid
Mid Liquid
Low Liquid
Eg 6:Liquidity x Asset Classes
High risk
Mid risk
Low risk
Eg 7:Risk level only
Domestic
Bonds
Domestic
Equities
Foreign
Bonds
Foreign
Equities
Alternativ
es
20% 20% 20% 20% 10
Example 1:4 traditional assets + Alts x Liquidity
10% High
Liquidity
10% Low
Liquidity
Global Bonds Global Equities Alternatives
40% 40% 20%
Eg 2: Global Equities and Bonds
Base asset Growth asset
60% 40%
Eg 3: Base asset and Growth asset
For
Liability
Rates Credit Equities Inflation Diversifi
cation
20% 20% 20% 20% 10% 10%
Bonds Equities Inflation
Hedge
Portfolio
Hedge
25% 25% 25% 25%
Eg 4:Asset Classes + Factors/Characteristics
Eg 5:Risk-centered
Appendix:Canada Pension Plan Investment Board
19%
37% 23%
16%
6%
15%
85%
カナダ国債
グローバル株式
未公開株式(DM,EM,CA)
上場株式(DM,EM,CA)
不動産・インフラ
国債および絶対収益型
クレジット投資 Exterior:Reference Portfolio
Interior:Actual Portfolio
Canada Gov. bonds
Global equities
Private eq. (DM, EM, CA)
Public eq. (DM, EM, CA)
Real estates, Infra
Gov.bonds/Abs strategies
Credit
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Outlook for asset allocation: mapping of new portfolio management
4 Traditional
assets
4 assets
+ Alts
Global EQ/FI
+
Alts
Base asset
+
Growth
asset
# of asset classes
Risk Level
(e.g. 7)
4 traditional
assets x
Liquidity
(e.g. 6)
4 traditional
assets +
Alts x Liquid
(e.g. 1)
Global EQ/FI
+Inflation +
Port. hedge
(e.g. 4)
1 2 3 4 5
# of factors/ framework
0
2
1
3 Risk
centered
(e.g. 5)
0
Below shows a map of new portfolio management, setting # of asset classes in x axis and # of factors/framework in y axis.
This shows two movements of new portfolio management. i). simplify asset classes, ii). set new factors other than # of asset classes.
i
ii
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Press Material Outlook for asset allocation: “Accelerated shift away from JGBs” and “strategy changes in Alternatives”
Domestic bonds General a/c Domestic equities Foreign bonds Foreign bonds
(currency hedged) Foreign equities Alternatives
-20.2%
-8.0%
-22.2%
-3.8%
-9.3%
-13.9%
-2.4%
-17.3%
-1.8%
-10.0%
-0.9%
-3.6%
-9.1% -8.2%
-18.8%
-8.5% -5.1% -5.1%
-12.0% -12.0%
-20.5%
-0.9%
-6.0%
-2.6% -1.7%
-6.0%
-9.4%
-25%
-20%
-15%
-10%
-5%
15.6% 14.7%
3.7%
13.3% 18.5%
7.4%
44.6%
3.6% 3.6% 6.4% 9.1% 1.8%
40.0%
3.4% 1.7% 4.3% 2.6% 6.8% 5.1%
49.6%
2.6% 0.9% 8.5% 5.1% 1.7%
65.0%
20%
40%
60%
80%2014年 2015年 2016年 2017年
More
allo
catio
n/
new
in
vestm
ent
Less a
llocatio
n
While the four traditional assets are viewed as overpriced, a shift from traditional assets to alternatives advances. Specifically, reflecting reductions in domestic bonds after the introduction of the negative interest rate policy, the ratio of respondents who answered that they “will reduce domestic bonds“ increased from last year.
For the other traditional assets, both the “increasing” and “decreasing” trends take a pause.
In alternatives, “strategy changes in alternative assets” are confirmed as a trend while some strategies show a more poor performance.
% of pension funds that will increase or decrease allocation to each asset class
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Outlook for Alternatives (1): Rival camps continue to vie for supremacy
Multi asset
Insurance
Equities long-short
REIT
Real estate (Equity, debt)
Private debt
PE
0.9%
6.8%
0.9%
4.3%
9.4%
4.3%
3.4%
9.4%
6.0%
1.7%
0.9%
6.0%
Most alternative assets are expected to gain weight. Specifically, many respondents are considering to raise the weights of infrastructure investments, real estate and private debt. Although these asset classes are relatively less liquid, they are nevertheless expected to demonstrate stable performance with low correlation.
Among assets with low correlations, many respondents are considering to raise the weight of insurance due to favorable performance and a low correlation with traditional assets. Meanwhile, many are expecting to reduce the weight of absolute return assets (including the FoF type).
% of pension funds that will increase or decrease allocation to each asset class
More allocation/ new investment Less allocation
Assets with
low
correlations
Income-
oriented
assets
Absolute return (FoF, equities-bond type)
Infrastructure (Equity, debt)
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Evolution of Alternatives (1): current state
# of Alternative strategies
1~2
# of Alternative strategies
3~4
# of Alternative strategies 5~
Average No. of Alternative strategies: 1.4 Ratio of Alternatives per strategy: 6.4%
Combination example: FoF+REIT/Insurance
Average No. of Alternative strategies: 3.6
Ratios of Alternatives per strategy: 4.6% Combination example:
REIT +Insurance/Multi asset/FoF/
+Infra/PE/Real estate
Average No. of Alternative strategies: 6.7
Ratios of Alternatives per strategy: 5.5%
Combination example:
Equal weights on 6-7 of following Absolute return/REIT/Multi asset/
Insurance/Infra/Equities long-short/Real estate/PE/PD
Alternatives: 8.8%
Alternatives: 16.4%
Alternatives: 36.5%
To grasp how alternatives will evolve, we classified the ratios of alternatives in portfolios by (1) the number of alternative strategies and (2) the ratios of alternatives in separate portfolios.
In samples of “one or two strategies and ratios of less than 10%” (left below), the main strategy is the FoF type and the secondary strategy is REIT/insurance.
In examples of “five or more strategies and ratios of 20% or more” (right above), there are no main and secondary strategies, with six or seven strategies given equal weights.
-10%
10-20%
20%- Ratios of Alternatives in portfolios (on actual basis)
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1
1 保険
REIT
Evolution of Alternatives (2): future direction
No. of Alternative strategies
1~2
No. of Alternative strategies
3~4 No. of Alternative strategies
5~
-10%
10-20%
20%-
Alternatives:
8.8%
Alternatives:
16.4%
Alternatives:
36.5%
With respect to questions on future direction, a group of “up to four alternative strategies and 20% of alternative assets” (two on left) plan investments in REITs and insurance, looking to raise the ratio of alternatives by increasing the weight in their main strategies.
However, a group of “five or more alternative strategies and more than 20% of alternative assets” plan to increase investments or make new investments mainly in hard assets.
All in all, the number of alternative strategies is around seven at most. Pensions are likely to increase or make new investments while conscious of diversification within their alternative strategies.
※複数回答含む
2
2
1 不動産
保険
REIT
Future direction
Future direction 1
1
2
2
1
2
2
マルチアセット
PE
不動産
インフラ
保険
REIT票数: 増額
票数: 新規投資
New investment
Increase investment
*Including multiple answers
Future direction
Insurance
Real estate
Insurance
Insurance
Infra
Real estate
Multi asset
Ratios of Alternatives in portfolios (on actual basis)
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By Asset Class and Strategy
Shift away from traditional benchmarks
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20
22
2
12
14
2
5
-24
-6
-9
-3
-7
-5
-7
2
3
2
4
-7
-3
-2
-6
-40 -30 -20 -10 0 10 20 30
その他(39)
マイナス金利対応型(2)
一般勘定(169)
パッシブ(134)
内外債スイッチ型(24)
ヘッジ付外国債券(58)
事業債運用(24)
長期債運用(19)
短期債運用(8)
Nomura-BPI総合アクティブ(101)
新規採用(2016年度)
解約(2016年度)
新規採用(2015年度)
解約(2015年度)
New(FY16)
Terminated(FY16)
New(FY15)
Terminated(FY15)
Domestic bonds: Accelerated shifts away from domestic bonds
Past 2 years: Changes in the number of Domestic bond mandates
1
1
1
3
2
-7
-1
-1
-5
-15 -10 -5 0 5 10 15
その他(39)
マイナス金利対応型(2)
一般勘定(169)
パッシブ(134)
内外債スイッチ型(24)
ヘッジ付外国債券(58)
事業債運用(24)
長期債運用(19)
短期債運用(8)
Nomura-BPI総合アクティブ(101)
採用(今後)
解約(今後)
New
Terminated
Active
Short dur.
Long dur.
Credit
Hedged foreign bonds
Country switch type
Passive
General a/c
Negative yield exclusive
Others
Outlook: Changes in the number of Domestic bond mandates
Note: Data showing the number of change is small are omitted. Figures following strategy names represent the number of mandates at the beginning of FY2015.
Shifts away from domestic bonds have accelerated due to the negative interest rate policy and yield curve control. Terminations continue to surpass new allocations, mainly in passive funds.
In the framework of domestic bonds, investments flow to “funds to cope with negative interest rates,” “hedged foreign bonds,” and “others (subordinated bonds and others).”
Active
Short dur.
Long dur.
Credit
Hedged foreign bonds
Country switch type
Passive
General a/c
Negative yield exclusive
Others
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About 80% of DB corporate pensions have answered, “The investment environment has changed due to the negative interest rate policy,” commenting that management has become more difficult.
As countermeasures, more pensions have adopted several products, rather than change their policy AM. Particularly among separate instruments, many are adopting “products to cope with negative interest rates (a negative yield exclusive type)”.
Some pensions have scrapped the domestic bonds framework and established a new “global bonds framework.”
Domestic bonds and negative interest rates: Measures to cope with negative yields advance in a year
Improved to some extent
9%
Improved 1%
To some extent 41%
Not much
11%
None 6%
Plan to change
6%
Considering 5%
Not much
23% No change
66%
Q1. Has your investment environment changed due to the introduction of negative interest rates?
Q2. Do you change your policy AM due to introduction of negative interest rates?
Q3. Did your management environment improve after the yield curve control policy in September last year?
Commissions newly imposed on short-term assets Debts swell due to low interest rates
Triggers shifts away from domestic bonds Expected return of domestic bonds falls Leads to scrapping domestic bond framework
No change
66%
Note: Figures may not add up to 100% due to rounding.
Significantly 42%
Changed
22%
Adopt several products ・Negative yield exclusive type
・Hedged foreign bonds
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Press Material Foreign bonds: Signs of a tapering in expansion of hedged foreign bonds
2
4
10
11
2
1
2
11
6
-8
-4
-3
-8
-3
8
2
9
2
3
2
4
1
2
-3
-6
-2
-15 -10 -5 0 5 10 15 20 25
その他(25)
パッシブ(国債型運用)(93)
債券バランス型(含絶対収益)(34)
スマート・ベータ(1)
モーゲージ債券/米地方債(4)
ハイ・イールド債券/バンクローン(20)
投資適格型(9)
エマージング債券(33)
地域特化(4)
ヘッジ付外国債券(72)
総合型運用(63)
国債型運用(39)
新規採用(2016年度)
解約(2016年度)
新規採用(2015年度)
解約(2015年度)
Gov. bonds
Aggregate bonds
Hedged foreign bonds
Region specific
Emerging bonds
Investment grade
High yield/Bank loan
Mortgages/US municipal bonds
Smart beta
Fixed income absolute return
Passive
Others
New(FY16)
Terminated(FY16)
New(FY15)
Terminated(FY15)
Past 2 years: Changes in the number of Foreign bond mandates
3
2
1
2
-4
-1
-1
-4
-5 -3 -1 1 3 5
パッシブ(国債型運用)(93)
債券バランス型(含絶対収益)(34)
ハイ・イールド債券/バンクローン(20)
エマージング債券(33)
ヘッジ付外国債券(72)
国債型運用(39)
新規(今後)
解約(今後)
Gov. bonds
Hedged foreign bonds
Emerging bonds
High yield/Bank loan
Fixed income absolute return
Passive
New
Terminated
53%
76%
81% 82% 88%
85% 79%
28% 30%
36% 44%
49% 48%
59%
20%
40%
60%
80%
100%
'11 '12 '13 '14 '15 '16 '17
Hedge ratio: Foreign bonds
Hedge ratio: All non-JPY assets
Currency Hedge Ratio
Note: Data showing the number of change is small are omitted. Figures following strategy names represent the number of mandates at the beginning of FY2015.
Main moves: (1) “JGBs ⇒ Hedged foreign bonds, mortgaged bonds and others, a balanced fixed income approach,” (2) “Hedged foreign bonds ⇒ Mortgaged bonds and others, a balanced fixed income approach”
Currency hedge ratios, which were on the rise in the last few years, have turned down on rising currency hedge costs against the dollar. The hedge ratio of overall foreign currency assets has risen as alternative assets (with currency hedges) have been included in portfolios.
Outlook: Changes in the number of Foreign bond mandates
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Press Material Foreign bonds hedge costs: Countermeasures are Euro-denominated products, bond futures and currency overlays
Q1. Do you have an awareness of the problems concerning
rises in hedge costs (vs. USD)?
Q2. Have you taken any measures to rising hedge costs (vs. USD)?
Q3. What is the level of assumed hedge costs going forward?
To some extent 41%
Not much
7%
No 6%
Changed/plan to change 33%
No change 41%
Undecided
2%
Considering 24%
1.25-1.50% 38%
Higher than 1.50%
50%
Expect further rises
Recognize that costs remain high
Cancel hedged US Treasuries. Consider European bank loans Studying measures to reduce hedge costs
Have cost consciousness. But have no intention to take currency risks
Considered measures but found no effective one
Note: Figures may not add up to 100% due to rounding.
Of the respondents, 88% answered that they were aware of the issues concerning hedge costs (against the dollar), up from 67% last year.
In FY2016, many adopted measures to counter issues in hedge costs against the dollar. Particularly, there were shifts to Euro-denominated assets, the use of bond futures and the adoption of currency overlays. Some skipped taking currency risks while being conscious of costs.
Yes, greatly 47%
Adopt Euro-based assets Reduce hedge costs using bond futures Adopt currency overlay Introduction of unconstrained bonds made easy by
setting global bond framework
1.25% or less, annually 13%
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Stand-out points in separate strategies: Multi-asset
Note: The total of ratios of answers may not add up to 100% as multiple answers are included.
33%
65%
42%
0% 0% 0%
20%
40%
60%
80%
33%
52%
0%
11%
4%
0%
20%
40%
60%
Others
2%
32%
37%
22%
15%
0%
10%
20%
30%
40%
50%
83%
4% 8%
0% 0%
20%
40%
60%
80%
100%
5%
24%
62%
0% 0%
10%
20%
30%
40%
50%
60%
70%
Q1. What did (do) you expect for investments? Q2. What did (do) you focus on in investments?
Q3. Do actual investments fulfill your expectations?
Q4. What is your complaint, or what is your concern over new investments?
Q5. What are your plans for future investments?
Low correlation
with traditional assets
Flexible changes
in allocation
Substitute for bonds
or low volatility
For reference
in allocation
Others Levels of
expected
risk/return
Effect of
diversified
investments
Grade of confidence in/reproduci
bility of strategy
Comprehensibility of
investment targets and
methods
Content Almost
content
Neither content
nor discontent
Discontent
a bit
Discontent Fail to achieve
assumed return
Higher correlation
with traditional
assets
Explanation of
management
methods
Difficult to compare with BM
and other companies
Others Rise in existing
investment strategies
Rise in different
strategies
No
change Reduction Others
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Stand-out points in separate strategies: Unconstrained bonds
Note: The total of ratios of answers may not add up to 100% as multiple answers are included.
41%
32%
23%
61%
2%
0%
10%
20%
30%
40%
50%
60%
70%
5%
24%
0%
52%
19%
0%
10%
20%
30%
40%
50%
60%
7%
82%
9% 5% 2%
0%
20%
40%
60%
80%
100%
51%
42%
2% 5% 0%
0%
10%
20%
30%
40%
50%
60%
70%
5%
21%
74%
0% 0% 0%
20%
40%
60%
80%
Q1. What did (do) you expect for investments? Q2. What were you careful about in investments?
Q3. What level of return do you expect? Q4. What level of risk can you accept? Q5. What are your plans for future investments?
Effect of
diversified
investments
Stable
income
gains
Restraint
of down
side
Preparation
for interest
rate rise
Others Ratio of
emerging
nations
Ratio of
investments
in high-yield
bonds
Whether
there is
currency
risk and
its size
Liquidity Level of
leverage
1-3% 3-5% 5%
or
more
According to content
of products
Others According to content
of products
Others Below
5%
5-8% Over
8%
Start
invest
ment
Raise
amount
Keep
invest
ment
Reduce
amount End
invest
ment
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Stand-out points in separate strategies: Direct lending and mezzanine
Note: The total of ratios of answers may not add up to 100% as multiple answers are included.
42%
96%
21% 13%
4%
0%
20%
40%
60%
80%
100%42% 42%
29% 29% 29% 25%
4%
0%
10%
20%
30%
40%
50%
28% 28%
44%
0% 6%
0%
10%
20%
30%
40%
50%
60%
38%
29%
0%
33%
0%
10%
20%
30%
40%
50%
60%
70%
25%
17%
33% 33%
8%
0%
10%
20%
30%
40%
Q1. What did (do) you expect for investments?
Q2. What did (do) you focus on in investments?
Q3. Do actual investments fulfill your expectations?
Q4. What do you plan for future investments?
Q5. What is your concern over the assets?
Effect of
diversified
investments
Stable
income
gains
Low
volatility High
total
return
Others Level of
expected
risk/return
Manager’s ability to
seek promising
targets
Manager’s ability to cope with
default
Yield
level
Level of
leverage
Fund’s
duration
Fund’s structure incl. tax effect
Content Almost
content
Neither content
nor discontent
Discontent
a bit Discontent Increase Maintain Decrease Undecided None Liquidity Fall in
return due to
intensified competition
Increase
in
default
Others
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Stand-out points in separate strategies: Real estate and infrastructure
Note: The total of ratios of answers may not add up to 100% as multiple answers are included.
56%
93%
6% 6% 0%
0%
20%
40%
60%
80%
100%
0%
62%
15% 15%
0% 0% 8%
0%
10%
20%
30%
40%
50%
60%
70%
42% 47%
16%
0% 0% 0%
10%
20%
30%
40%
50%
60%
43%
28%
0%
28%
0%
10%
20%
30%
40%
50%
60%
70%
24%
17%
5%
45%
10%
0%
10%
20%
30%
40%
50%
Q1. What did (do) you expect for investments? Q2. What did (do) you focus on in investments?
Q3. Do actual investments fulfill your expectations?
Q4. What is your plan for future investments? Q5. What is your concern over the assets?
Effect of
diversified
investments
Stable
income
gains
Capital
gains
Inflation
hedge
Others Level of
expected
risk/return
Income
level
Either a core or an opportunistic strategy
Either an open-end or closed-
end
Manager’s
performance
Fund’s structure incl. tax effect
Others
Content Almost
content
Neither content
nor discontent
Discontent
a bit
Discontent Increase Maintain Decrease Undecided None Liquidity Effect of
interest
rate rise
Fall in return due
to intensified
competition
Others
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This material is prepared by JPMorgan Asset Management (Japan) Limited. This material has been compiled from external sources we believe to be reliable but
we do not hold ourselves responsible for its completeness or accuracy. Our views and analysis based on the results of the survey constitute our judgment and
are subject to change without notice. This material does not intend to recommend buying or selling any securities and the purpose of this is the explanation even if
it refers any securities and/or issuers in this material. There is a possibility that J.P. Morgan Asset Management, any of its subsidiaries or its employees hold any
securities mentioned in this material.
JPMorgan Asset Management (Japan) Limited
Financial Instruments Business – Registration Numbers: Kanto Local Finance Bureau (Financial Instruments Firm)No. 330
A member of “The Investment Trusts Association, Japan”, “Japan Investment Advisers Association”, “Japan Securities Dealers Association” and “Type II Financial
Instruments Firms Association”
This material was issued by JPMorgan Asset Management (Japan) Limited only for press/media, not for public distribution.