TOKYO: Global markets have become so synchronised that money managers risk losing on every front, said chief investment officer Hiromichi Mizuno, of the world’s largest pension fund.
Japan’s US$1.5 trillion Government Pension Investment Fund lost money in equities, fixed-income and currency positions over the last three months, Mizuno said Tuesday in Sacramento, California.
“Conventional wisdom of portfolio diversification is when we lose money in equity we make a profit in fixed income,” Mizuno told the board of the California Public Employees’ Retirement System, the largest US pension.
“But we lost in every single asset classes and lost in the currency translation as well. It never happened in the past.”
The Japan system’s annualised returns were 3.03% from fiscal 2001 to 2018, compared with a more than 6% annual average for Calpers, which has an annual target of 7%.
More than half of the GPIF’s portfolio was in domestic stocks and bonds as of March 31.
Many Japanese bonds carry negative yields, and the Nikkei 225 stock index has slid 3% in the past three months.
Global equities and bonds have been whipsawed by an ongoing trade war between the US and China that could slow global economic growth.
The MSCI All-Country World Index of global stocks dipped 0.2% in the past three months and yields on 10-year US treasuries fell 85 basis points.
Meanwhile, Japan’s currency has strengthened 3.7% against the dollar and 4.3% versus the euro in the past three months, decreasing the value of the GPIF’s foreign holdings.
The GPIF is seeking uncorrelated returns by pushing into private investments, which can make up as much as 5% of its portfolio.
Mizuno said it’s becoming an increasingly crowded trade.
Alternative investments accounted for 0.35% of the GPIF’s total assets as of the end of June, up from 0.26% at the end of March, according to its latest performance report.
“Everybody is trying to increase private assets, or like a private investment, because obviously it’s not all correlated to the public market,” he said.