Dividends and Shift in fixed-income allocation raises a $250 billion question

If you listen to Kevin O’Leary of Shark Tank when interviewed about what he is buying and selling, we will often say if a stock goes above 5% total holding I sell or trim my position. He does this because the stock has made gains and for Mr. O’Leary the risk – reward position will change if he does not trim positions. There are many other funds which do the same thing, it is a good discipline to have.

Another type of fund is the US defined benefit pension funds, when they are set up they offer a set percentage of 60% stock and 40% fixed income combination. In stable times or in low growth the funds do not have a large effect on the market. However, they have a reporting regulation for the government which is the end of March. At the end of March, they need to start April with the 60/40 combination.

In an article by Scott Barlow, a report by JPMorgan quantitative strategist Nikolaus Panigirtzoglou says the US defined pension funds have about $7 trillion in assets. The 60/40 asset allocation needs to be adjusted and $126 billion of selling of fixed income assets and buying equities needs to be done. In Norway the world’s largest sovereign fund and Japan’s government pension fund needs to shift $62 billion between asset classes after the end of March.

Linking to dividend paying stocks, there are many variables on the stock market and when the largest players are institutional investors, it means they have reporting requirements which must be met. This means sometimes there are rational reasons why the markets go up and down, sometimes there are less rational reasons, but in the end if a company earns a profit that can pay a dividend, it will be worth more in the long run.

There are more questions than answers, till the next time – to raising questions.

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