Negative investment returns are expected to be the norm this year, as pension plans face an uphill battle to hit yearly gains. That’s left many investors looking for the right mix for their portfolios, and BlackRock, the largest asset manager in the world, touts their approach as the ideal asset mix, reports an article in Chief Investment Officer.
BlackRock’s recipe? A portfolio heavy on bonds and combined with ETFs; specifically, 85% fixed income, and 15% in stocks and alternatives. They predict that an 85% bond allocation will garner 7.5% returns annually over the next few years. With bond yields around 4% for a 10-year Treasury note, BlackRock expects those high yields to continue, particularly if the Fed stops raising rates by next year. But on the stock side, those prices aren’t likely to rise anywhere close to where they used to be anytime soon, the article maintains.
Pension plans have been hit hard in 2022, failing to reach their targeted returns of 7.0% to 7.5% this year. Dragged down by the declining markets, public pension funds have experienced the biggest drop in funded ratios since the Great Depression. According to Public Plans Data that is cited in the article, public retirement programs allocated 21.4% to fixed income and 47.3% to equities. Meanwhile, corporate plans showed an allocation of 50% bonds and 30% as of 2021. If BlackRock’s calculations are correct, perhaps their suggested allocations could help turn stem the losses they’ve been hit with this year.