JPMorgan estimates $165B in equity selling and bond buying from June rebalancing

Every quarter, the world’s largest institutional investors look at their portfolios, notice the ratios are off, and start moving enormous piles of money around to get back on target. This time, JPMorgan estimates that process will involve roughly $165 billion in equity selling and corresponding bond buying as June comes to a close.

Who’s selling and how much

The selling pressure isn’t coming from one source. It’s a coordinated, if unintentional, pile-on from some of the planet’s biggest pools of capital.

US defined benefit pension funds, which collectively manage around $9.6 trillion in assets, are expected to offload approximately $55 billion in equities. These funds operate under strict allocation targets. When stocks outperform bonds over a quarter, the equity slice of the pie gets too big, and portfolio managers trim it back.

Japan’s Government Pension Investment Fund, better known as GPIF, is projected to sell around $60 billion in global equities. GPIF holds approximately $1.9 trillion in assets, making it the largest pension fund on Earth.

Norway’s Norges Bank, which manages the country’s massive sovereign wealth fund with about $2.1 trillion in assets, is expected to sell roughly $40 billion. Switzerland’s central bank, the SNB, rounds out the major sellers with an estimated $25 billion in equity disposals.

The partial offset nobody should get too excited about

There is a counterweight, but it’s modest by comparison. Balanced mutual funds, which hold about $4 trillion in assets globally, are anticipated to contribute around $15 billion in equity purchases during the same period.

The reason balanced funds are buying rather than selling comes down to recent market dynamics. Equity returns have been relatively flat while bond markets have posted positive performance. That means balanced funds are actually underweight equities relative to their targets, creating a modest bid where everyone else is offering.

Why this happens and why it matters

Institutional investors don’t rebalance because they think stocks are overvalued or bonds are undervalued. They do it because their investment policy statements require specific allocation percentages. A pension fund targeting 60% equities and 40% bonds doesn’t care about market sentiment. It cares about staying within its policy band.

Historically, quarter-end rebalancing flows have created short-term pressure on equity markets while providing a tailwind for bonds. June 2023 experienced an anticipated $150 billion in equity selling driven by the same rebalancing logic.

For equity investors, the practical implication is straightforward. The last few trading days of June may see heavier-than-usual selling pressure, particularly in large-cap stocks that dominate institutional portfolios. For bond investors, roughly $165 billion looking to rotate into fixed income should provide a meaningful bid, potentially compressing yields temporarily as demand outstrips supply during the rebalancing window.

Disclosure: This article was edited by Editorial Team. For more information on how we create and review content, see our Editorial Policy.