Stock market surge too high, retirement funds forced to rebalance, will funds flow into Bitcoin ETF?

According to a report from Bloomberg, due to the strong performance of the U.S. stock market in the first quarter, Goldman Sachs Group believes that pension funds may sell around $32 billion in stocks to rebalance their positions. Will the funds from these stock sales flow into Bitcoin ETFs?

Goldman Sachs Forecasts Retirement Funds to Sell 32 Billion Shares for Rebalancing

Analysts from Goldman Sachs' FICC and Equities teams noted in a report on 3/26 that due to the strong performance of the U.S. stock market in the first quarter, retirement funds may sell around $32 billion worth of stocks to rebalance their positions, marking the largest adjustment since June 2023.

Institutional investors and retirement funds typically have strict capital allocation constraints and need to review their market exposure at the end of each month and quarter. However, since the beginning of 2024, the S&P 500 index has risen by 8.8%, while global bonds have fallen by approximately 2%, indicating that funds may need to sell more stocks than usual to rebalance.

What is Rebalancing?

Rebalancing is a crucial mechanism for long-term asset allocation. As the term implies, it involves rebalancing the investment portfolio.

Using the common 60% stocks and 40% bonds traditional asset allocation as an example,

Initial Allocation: Allocating $100 with $60 in stocks and $40 in bonds.

Final Allocation: Stocks at $60 have risen to $90, while bonds at $40 have dropped to $30. Total assets have increased to $120.

At this point, due to the rise in stock prices, the weight of stocks has deviated from 60% to $72, requiring the sale of some stocks; conversely, $18 of bonds need to be purchased to bring the weight back to 40%.

Rebalancing is designed to maintain the original asset allocation while also offering opportunities to buy low and take profits, making it an essential task for those engaged in long-term asset investment. For instance, Ark Investment's recent continuous sale of Coinbase stocks is due to their excessive price increase, necessitating sales for rebalancing to maintain their existing weight.

Will Funds Flow into Bitcoin ETFs?

With the funds from selling stocks, is there a chance that they will flow into Bitcoin ETFs? Retirement funds have certain risk controls and requirements for investment targets, and exposure to Bitcoin must be obtained through mining stocks or related stocks like MicroStrategy before. However, since the U.S. officially approved the issuance of Bitcoin spot ETFs in January, investors can now easily obtain exposure and returns related to Bitcoin through ETFs.

Previously, the Arizona State Senate passed a resolution urging legislators and state retirement funds to consider including Bitcoin spot ETFs in their investment portfolios.

As for whether funds will indeed flow into Bitcoin spot ETFs as expected by the community, we may have to wait for the 13F reports in mid-May to find out!

Have institutional investors entered the Bitcoin spot ETF market? Stay tuned for the mid-May 13F reports.