Stock market information at the Nasdaq MarketSite in New York, US, on Tuesday, April 22, 2025. US stocks pared gains as traders weighed earlier remarks from Treasury Secretary Scott Bessent on the US-China tariff standoff. Photographer: Michael Nagle\/Bloomberg <\/p>\n
(Bloomberg) \u2014 Some pension funds are waking up to a harsh reality: they\u2019ve been left behind by the market\u2019s hottest rally.<\/p>\n
Investors are discovering they\u2019re underexposed to names like Nvidia Corp (NVDA<\/a>). and Microsoft Corp. (MSFT<\/a>)\u2014 both of which recently hit record highs. The shortfall traces back to active managers, who often sidestep expensive tech stocks in search of other opportunities.<\/p>\n Most Read from Bloomberg<\/p>\n Now they\u2019re shifting course, with the help of so-called \u201ccompletion portfolios,\u201d tailored strategies that help plug gaps in exposure. Demand for these vehicles is on the rise, according to asset managers Pacific Investment Management Co., Russell Investments Group, and Australia\u2019s Queensland Investment Corp., which together oversee $2.5 trillion and offer the service.<\/p>\n \u201cWe have seen a marked increase from our clients adopting new completion portfolio solutions the last 18 months\u201d said Nick Zylkowski, co-head of customized portfolio solutions at Russell Investments. \u201cPortfolio analytics that measure risk across the entire portfolio are critical to the decision making.\u201d<\/p>\n These portfolios are gaining traction as markets become more concentrated, pressuring institutional investors to rethink long-held caution or risk falling further behind. The Magnificent Seven now make up over 30% of the S&P 500 index, up from 10% a decade ago. Surging valuations for the group have powered US stocks in prior years, in turn amplifying the effect of pullbacks like that seen in the past week.<\/p>\n The strategy involves pension systems pooling together their various managers\u2019 holdings, measuring where the combined portfolio falls short of a benchmark, and then uses a separate sleeve \u2014 often derivatives or baskets of stocks \u2014 to fill in the missing exposures. The idea is not to chase returns but to cut the risk of drifting too far from the market itself.<\/p>\n Melbourne-based Mercer Superannuation Australia Ltd. is one pension that has leaned into the strategy to avoid underperformance in the past fiscal year.<\/p>\n \u201cWhen we look across the universe of active global equity managers, we find that the overwhelming majority have been materially underweight to these large US technology companies,\u201d said Mercer Chief Investment Officer Graeme Miller, who manages A$74 billion ($48 billion) in assets.<\/p>\n Story Continues <\/p>\n LegalSuper, which has A$7 billion in assets, uses completion portfolios to hedge concentrated exposures. Relying on external active managers usually \u201cmeans that you\u2019re underweight the big mega caps,\u201d said interim CIO Andrew Lill. \u201cAs a result, there\u2019s an increasing need to reduce active risk,\u201d through completion portfolios, he said.<\/p>\n Still, they\u2019re not a cure-all. AustralianSuper, the country\u2019s largest pension with A$388 billion under management, uses completion portfolios but still blamed underweight exposure to megacap US tech in externally managed funds for lackluster returns last year.<\/p>\n Others avoid them altogether. \u201cThere are some great alpha opportunities out there,\u201d said Mark Rider, chief investment officer of Brighter Super, a A$35 billion fund, according to their website. A completion portfolio would \u201coverride\u201d their contribution, he said.<\/p>\n Benchmark Mismatches<\/p>\n The strategy is also gaining traction in fixed income. Active bond managers are preferring corporate debt for higher yields, which creates a mismatch against benchmarks, according to Stuart Simmons, head of multi-asset solutions in the Liquid Markets Group for Queensland Investment Corp. As a result, more large investors are using completion portfolios to load up on US Treasuries exposure, Simmons added.<\/p>\n Other investors have turned to the portfolios to manage risk across asset classes, aligning exposure to growth proxies in stocks, bonds and commodities, said Sam Watkins, who heads business in Australia and New Zealand at Pimco.<\/p>\n \u201cWhat has changed is that it was a very narrow subset that we were dealing with in the past, and that now has broadened into a much larger group,\u201d Watkins said, referring to the use of the strategy.<\/p>\n (Updates fifth paragraph to show recent pullback in tech stocks. An earlier version corrected the spelling of Stuart Simmons)<\/p>\n Most Read from Bloomberg Businessweek<\/p>\n \u00a92025 Bloomberg L.P.<\/p>\n","protected":false},"excerpt":{"rendered":"Stock market information at the Nasdaq MarketSite in New York, US, on Tuesday, April 22, 2025. US stocks…\n","protected":false},"author":3,"featured_media":162551,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[15],"tags":[94002,3638,64,94004,147,94005,255,33401,94003,28559,18244,18318,67,132,68],"class_list":{"0":"post-162550","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-asset-managers","9":"tag-bloomberg","10":"tag-business","11":"tag-mercer-superannuation-australia-ltd","12":"tag-nvidia-corp","13":"tag-pension-funds","14":"tag-personal-finance","15":"tag-portfolio","16":"tag-queensland-investment-corp","17":"tag-russell-investments","18":"tag-scott-bessent","19":"tag-tech-stocks","20":"tag-united-states","21":"tag-unitedstates","22":"tag-us"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@us\/115064167689408791","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/162550","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/comments?post=162550"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/162550\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media\/162551"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media?parent=162550"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/categories?post=162550"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/tags?post=162550"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}} <\/p>\n