CalSTRS changes asset allocation and expects negative return for the year
The changes were made retroactively to July 1 because some of the asset classes have already reached or are about to reach their long-term maximum allocations, Ms. Jimenez said. For example, IMF staff expects the inflation-sensitive portfolio to reach its long-term target of 6% by December 2022.
Asset allocation has a big impact on returns, particularly if portfolios have a bias toward value or growth stocks, Ailman said.
CalSTRS has a bit of a value bias, helping to protect the portfolio as markets emerge from an extended period of growth, Ailman said.
He noted that Cathie Wood, CEO and CIO, tech stock investor ARK Investment Management, has already surrendered all of the gains it made last summer.
“Over long periods … value beats growth over long periods,” he said, referring to work done by Eugene F. Fama and Kenneth R. French in the 1990s at the University of Chicago and to the Fama-French three-factor model.
The portfolio’s diversification as well as its portfolio of risk-mitigating strategies also helped sustain the fund through turbulent times, Ailman said.
CalSTRS is one of the few institutional investors in its peer group with a risk-mitigation portfolio, he said. “It’s not perfect,” but it provides a hedge against market volatility and adds “a bit” of returns during volatile markets.
The portfolio of risk mitigation strategies “has done its job”, he said. The inclusion of this asset class in CalSTRS’ portfolio will differentiate CalSTRS from its peers, Ailman added.