Austrian pension funds are increasingly looking to European, emerging market and small-cap equities as they seek to diversify away from the US market.
US stock indices are highly concentrated across sectors and companies, a dynamic that has driven strong outperformance in recent years.
“This trend of strong outperformance in technology stocks could not continue, potentially having a negative impact on the overall portfolio,” said Claudio Gligo, chief investment officer of Bonus Pensionskasse, the multi-employer scheme owned by Zürich and Generali.
For this reason, Gligo said European and emerging markets offer suitable diversification options.
“This can be achieved through large-cap stocks and, depending on individual assessments, also partly through small-cap stocks,” he added.
The outsized influence of the so-called Magnificent 7 – Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla – has reinforced the case for broader equity diversification among Austrian pension funds, including greater exposure to Europe, regional strategies and small caps, while avoiding home bias, said Gerald Moritz, managing director of Moritz Consulting.
Across the wider DACH region, pension funds are also considering small-cap equities and equal-weighted indices to reduce concentration risks and lessen reliance on US stocks.
Asset manager Swisscanto, for example, expects Swiss pension schemes to strategically increase allocations to small-cap or Swiss equities.
Over recent years, Austrian Pensionskassen have reduced their bond allocations in favour of equities, now the largest asset class in investment portfolios at 42.16% of total assets of €29.60bn at the end of last year, according to the Financial Market Authority (FMA).
Equity investments generated returns of 4.88% last year, down from 7.77% in 2024, according to figures published last week by the Association of Austrian Occupational Pension and Provision Funds (WKO).
Less home bias
Unlike their Swiss peers, Austrian pension funds invest less than 2% of total assets in domestic equities and less than 5% in Austrian corporate or government bonds.
Overall home bias – the combined share of Austrian equities and bonds – is below 3%, with portfolios mainly focused on US and European equities and, to a lesser extent, emerging markets, according to the FMA.
Bonus Pensionskasse invests opportunistically in small caps, with geographic exposure determined by market conditions, ranging from global strategies to specific regions, Gligo said.
“If our market observations or analysis give us strong conviction in a particular theme, we establish a corresponding position,” he added.
Pension funds typically invest in small caps for diversification purposes, although the investable universe of small and mid-sized companies is significantly smaller than, for example, in Germany, Moritz said.
“Some pension funds also turn to additional regional diversification within their small-cap investments,” he noted.
Günther Schiendl, chair of the board of VBV pension fund, questioned the definition of listed SMEs.
“Generally, in such cases, one invests in micro caps, because SMEs are usually not listed on the stock exchange. We have long invested in European small caps and, years ago, also in micro caps,” he said.
