US stock prices key to Irish national pension fund sales
Published 01/12/2010 | 05:00
Plans by the National Pension Reserve Fund to sell down its huge shareholdings could be significantly hurt by any downturn in the US stock market.
The pension fund must sell off its equities and liquidate its cash resources as part of plans to include €17bn of Irish funds in the IMF/EU €85bn rescue fund.
US equity markets have been buoyed in the second half of 2010 by so-called quantitive easing two (or QE2), but some analysts believe the equity market has gone ahead of economic fundamentals and may experience a significant correction.
US stocks make up 17pc of the fund's main portfolio, dwarfing holdings in any other country.
Much of the fund's stocks are in the S&P 500, which is up 6pc so far this year, with many analysts expecting a correction in the early part of next year.
The success of the fund's sales will also heavily depend on the performance of the French market, which makes up 7.8pc of the pension fund's discretionary portfolio.
The Irish stock market is almost irrelevant to the fund, making up just 0.3pc of the discretionary portfolio, although the main companies the fund holds are CRH, Ryanair and Kerry Group.
The pension fund will keep its private equity and property portfolios as leaving these at this point could incur penalty charges. Some of these funds are so-called closed funds, meaning that shares in the funds are not easily translated into cash until the fund matures.
The fund has a low exposure-- based on end of 2009 figures -- to emerging markets and also does not short most stocks.
This means that any correction in the main US indices would erode gains very significantly.
The fund has been undergoing a change in its investment approach recently, looking for a higher return.
It has adopted some of the trading strategies normally used by hedge funds.