What are Pension Fund or Pension Portfolio

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Question A Pension portfolio is a common asset pool meant to generate stable growth over the long run, pension funds are provide for employees when they reach to an end of their working years and retirement. (Investspodia US, pension fund 2014) Base on the case study, TMP is currently investing only in the U.S security market which is also investing domestically. Due to an increasing demand from its institutional clients for information and assistance related to international investments, the firm has decided to invest on the international market. The reason on adding international securities to the portfolio mainly it has a few advantages and disadvantages. The advantages on investing on international securities are diversification. By investing on the different international and domestic company across the world, there is a greater chance to lower the overall risk of a portfolio. For example, if the U.S market starts to suffer from recession, the investors have a chance to leverage growth in a foreign market. Genuinely, this can offer investors multiple layers of diversification, including geographical, currency, and sector, thus reducing the chances that the performance of a single stock or instability in a single country can negatively impact the performance of the entire portfolio. Security returns are much less correlated across countries than within a country. The main reason is because political, economic, institutional or etc factors that are affecting security returns tend to vary great deal across different countries, resulting in relatively low correlations among international securities. For instance, political issues in Singapore may affect or influence the stock price in Malaysia, but it has little or close to no i... ... middle of paper ... ...is the reason is why investors are using this strategy when there are uncertainties on what the market will do. There are also other types of financial instruments fund managers can use in order to reduce risks the fund is facing, such as stocks, swaps, options and etc. For the current case where the committee now wanted to invest internationally, fund manager or committee had to possess the knowledge on hedging against exchange rate risk with currency ETFs. There’s is no deny that investing internationally such as on stocks and bonds which will generate large amount of returns and also provide a greater degree of portfolio diversification, but there is also risk from the exchange rate. By engaging in exchange-traded funds (ETFs), the fund can enjoy benefits which will make the fund more liquid and versatile so that the fund enjoys more benefits with lesser risks.

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