By Sam Forgione
NEW YORK, April 2 (Reuters) - U.S. consultants who advise
companies on how to manage their employees' retirement plans
expect emerging market stocks to outperform in a lower-return
environment over the next several years, a survey by bond giant
PIMCO showed on Monday.
The survey, which tracked 51 consulting firms, found that
many of them expect emerging market stocks to outperform all
other asset classes, but with greater volatility. In addition,
65 percent of the firms expect lower returns and higher
volatility in various asset classes over the next two to five
The findings come as investment returns from "junk" bonds
and government guaranteed mortgage securities to even some
battered euro-zone debt have dropped against the backdrop of
global central bank policies intended to suppress borrowing
Corporate pension plans are hard-pressed to generate profits
amid a low interest-rate environment and rising funding
shortfalls. The 100 largest U.S. pension plans had a record
funding deficit of $388.8 billion at the end of last year, a
$61.1 billion increase from 2011, according to consulting firm
A significant portion of the consulting firms in the PIMCO
survey, which advise an average of $48 billion each in 401(K)
plan assets, forecast that emerging market stocks will earn a 10
percent return over the next three to five years.
Despite that strong forecast and expectations of lower
returns overall, 60 percent of the firms recommended cutting
exposure to risk assets, including stocks. Among the firms, 81
percent also suggested adding inflation-protected securities,
including Treasury Inflation-Protected Securities, to retirement
Among the firms, 78 percent also predict that corporations
will add global stocks to their retirement plans.
Newport Beach, California-based Pacific Investment
Management Co., or PIMCO, has conducted the Defined Contribution
Consulting Support and Trends Survey annually for the past seven
years. PIMCO had $2 trillion in assets at the end of last year.
The company, run by founder and co-chief investment officer
Bill Gross and chief executive and co-chief investment officer
Mohamed El-Erian, runs the PIMCO Total Return Fund, the world's
largest mutual fund with over $288 billion in assets.
PIMCO also managed nearly $174 billion in retirement plan
assets as of Dec. 31, 2011. Gross has warned of lower returns on
financial assets, particularly high-yield bonds and stocks, in
his monthly letters to investors.
Many of the consulting firms surveyed, which included JP
Morgan Performance Analytics & Consulting and Morgan Stanley
Smith Barney, recommended adding emerging market bonds,
commodities, and high-yield "junk" bonds to retirement
portfolios in target-date funds.
Among the firms, 61 percent said that emerging market debt
would be valuable to add, while 49 percent vouched for
commodities and 39 percent vouched for high-yield.
Nearly all of the firms - 98 percent - also suggested that
companies offer target-date and target-risk strategies in
Target-date strategies aim for a retirement date and shift
asset allocation from riskier assets like stocks to more stable
assets like bonds as the retiree ages.