The last few years have been dominated by one theme and every trade has been a derivative bet on that theme. The idea that by inflating another asset bubble, a wealth effect will ripple through the market to the real economy, encourage animal spirits and spark a renaissance (in something, we are not sure what). Well, so far no good. The real economy, as discussed at length, is not recovering; but the question of just who is benefiting from the wealth effect is unclear. As the following charts across the 100 largest G4 pension plans show, the asset managers have missed the trickle-down. Despite bad (and worsening) under-funding and a Fed repressing 'safe' assets to the point of ultimate risk, G4 pension funds have refused to partake of any mythical 'great rotation', remain avid bond buyers, are as drastically under-funded as ever, and finally, have maintained the same 'cash on the sidelines' for 14 years now...
G4 Pension funds and insurance company equity and bond flows... (it seems like the great rotation has been a theme for 14 years - from equities to bonds...)
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G4 Pension funds and insurance company equity and bond allocations... (nothing has changed since the crisis in terms of allocation shifts - despite all the Fed's best efforts)
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Pension fund deficits... (and even with huge and growing under-funding pension fund managers are unwilling to jump into risky assets)
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G4 Pension funds and insurance company cash and alternatives levels... (keeping cash steady (so much for the cash on the sidelines myth; and not reaching aggressively into alternatives or riskier asset classes)
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Of course, with volumes low, the marginal momentum buck entering this market is all that matters but it seems for now that broadly speaking, the biggest funds have not benefited the from the 'recovery' and as for the 'money on the sidelines' - well... that appears as 'real' as the economic recovery and the 'great rotation' - it is painful when facts get in the way of a good story...
Charts: JPMorgan