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Japan Pension Fund Sheds Bonds, Bets Virus Fears Are Overblown

Chikafumi Hodo and Komaki Ito

(Bloomberg) -- One yield-hungry Japanese pension fund is sticking with its plan to cut bond holdings, even as fears about the spreading coronavirus sends global debt funds surging toward all-time highs.

Yields are just too low to boost returns and there is still an ongoing need for long-term investors to shift to alternatives such as real estate and infrastructure, according to Shinichiro Shibata, executive director of investment at Nisseikyou Pension Fund. The 96.7 billion yen ($880 million) fund currently has about 40% of its portfolio in bonds compared to a 35% equivalent in its target benchmark.

“The situation of the virus is going to settle down at some point and after that markets will recover,” Shibata said in an interview last week. “We manage our portfolio for the long term.”

Mounting coronavirus cases across Asia, Europe and the Middle East have sent investors rushing to havens such as sovereign bonds and gold. Japanese investors in particular have piled into overseas bond markets, buying more than 3 trillion yen ($27 billion) of foreign debt in the first two weeks of February, according to data from the finance ministry.

The yield on 10-year U.S. Treasuries -- often seen as the global bond benchmark -- fell to a record low on Thursday.

According to Shibata, the fears may be overdone -- there will likely be just a limited impact from the outbreak as global economic infrastructure hasn’t been damaged, he said.

Target 2%

Nisseikyou, which manages assets for 48,000 employees of a consumers co-operative, aims to generate an annual return of 2%. To help achieve this, it wants to boost its exposure to alternatives to 13% from around 5%, a group of assets which include domestic property funds and catastrophe bonds.

The asset manager would also consider increasing its global equity exposure to as much as 20% of assets, compared to about 18% at the moment, and is looking at boosting its positions in absolute-return funds.

One area Nisseikyou is happy to avoid is emerging markets debt, apart from some small holdings of dollar-denominated notes.

“We’ve been slashing our holdings of EM bonds over the past few years,” Shibata said. “We don’t like high volatility and that’s why we want to avoid EM bonds.”

To contact the reporters on this story: Chikafumi Hodo in Tokyo at chodo@bloomberg.net;Komaki Ito in Tokyo at kito@bloomberg.net

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Cormac Mullen, Liau Y-Sing

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