Institutions, rather than individuals, have long dominated global stock markets. For SMSF managers, watching what the big funds are doing is crucial because their strategies often determine what happens to prices, especially share prices.
The pattern of growth in institutional accumulation of assets is continuing. According to research by Pensions & Investments and Towers Watson, the total assets of the world’s largest 300 pension funds grew by almost 10% in 2012 (in US dollar terms) to $US14 trillion. Australian super funds grew even faster, by 20%.
The P&I / Towers Watson global 300 research found that global growth in assets in 2012 was among the highest recorded in recent years; up from around 2% growth in 2011. It was not as high as the exceptional growth of 14% recorded in 2007, which came in the lead up to the GFC.
Australia had the highest five-year compound growth rate measured in US dollars over the period 2007 to 2012 of 13%, followed by Taiwan at 11%, Denmark at 9%, Mexico at 7% and Brazil at 5%. Viewed in local currency terms, the same five countries experienced the highest growth globally (although in a different order): Australia and Taiwan experienced currency appreciations relative to the US dollar over the five-year period in contrast to currency depreciations for Denmark, Mexico and Brazil. In local currency terms, the highest five-year growth rates were: Denmark and Mexico (both 11%), Australia (9%), Brazil and Taiwan (both 8%).
Martin Goss, senior investment consultant at Towers Watson in Australia comments that the driving factor was their relatively high allocation to equities and other growth assets. Other contributing factors were a 2% strengthening of the Australian dollar against the US dollar over calendar year 2012 and continuing net inflows to most of these funds.
Such strong returns do suggest that there will be greater optimism in the institutions, which augurs well for prices. It may also create dangers as markets become heated up.