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The data show that in each year 1951 through 1954 the amounts paid out in benefits were about equal to income received from investments, largely reflecting the early stage of development of pension funds. In 1954, interest and dividend receipts exceeded benefit payments by 10 percent. In some industry groups, namely, manufacturing and communication, this relationship was even more pronounced. It was also more pronounced for larger funds than smaller ones, as measured by sample data. This is to be expected in view of larger amounts of high-yielding securities held by large funds in comparison with smaller ones.
Impact on the Securities Market
Corporate pension funds have supplied an important part of capital requirements of United States corporations during recent years. The effect of their purchases and holdings must be considered in any analysis of the bond market or stock market. One of the undertakings of the Committee on Banking and Currency in its survey of the stock market early in 1955 was to assemble figures on purchases of equity issues by institutional investors, including pension funds. 1/ The Securities and Exchange Commission and others were asked to furnish the Committee with estimates of institutional investments during the period of 1951 through 1954 and these data were used in the staff report. At that time the S.E.C. study of pension funds was in its initial stages and the interest of the Committee gave impetus to the survey. Although sufficient questionnaires regarding pension funds were not received in time to prepare the estimates given in this report, 2/ enough information became available to make fairly good estimates for the Committee. Great reliance was placed in the comprehensive survey of pension funds conducted by Fortune Magazine. 3/ Differences in the holdings and net purchases of preferred and canmon stock appearing in the Fulbright report and in Tables 12 and 13 are chiefly due to the use of later figures derived from the complete survey of corporate pension funds. In the case of other institutional groups, differences are due to later, or final, 1954 figures becoming available. Differences are minor, however, and not of enough importance to invalidate any conclusion drawn from the earlier estimates. In Tables 12 and 13, it will be noted, holdings and purchases of personal trust funds and non-profit institutions are included with individual investors. Such a classification is used
See 'Factors Affecting the Stock Market', Staff Report to the Committee on Banking and Currency, U.S. Senate, April 30, 1955, Chapter V.
Preliminary figures were given in Statistical Series Release No. 1335.'
because, first of all, no comprehensive figures are available and, secondly, the Securities and Exchange Commission includes these groups with individuals in its estimate of saving in the United States. (See Table 15).
Relationship to Corporate Securities Held by All Investors
At the end of 1954 it is estimated that the market value of all corpom rate securities outstanding in the United States exceeded $350 billion. More than three quarters of this amount, or $270 billion, was held by individuals, including holdings of personal trust funds and non-profit organizations. 1/ Foreigners held another $5 billion. Institutional investors in the United States owned the balance of approximately $75 billion, As is well known, there is considerable difference in the types of securities which are held by various investors; in the case of stocks, over 90 percent was owned by individuals, (including personal trust funds, etc.) at the end of 1954, while almost two-thirds of the debt issues outstanding were held by institutional investors. Among the institutional investors most important were life insurance companies with investments of about $39 billion, including more than $35 billion of debt issues and a little over $3 billion of stock. The next most important institutional group are the self-insured corporate pension funds with corporate security investments at the close of 1954 valued at $10 billion, and consisting of more than $6 billion of corporate bonds and notes, over $3 billion of common stock and $500 million of preferred stock. These figures relate to estimated market value, as indicated in footnote qe of Table 12.
Purchases as Related to New Corporate Issues
While corporate pension fund holdings may seem inconsequential relative to the total amount of securities outstanding, (less than 3 percent of the total) their fast growth and the substantial part of new securities absorbed by them in recent years is a matter of interest to most persons studying the capital market. During the four years 1951-54, $5.8 billion of corporate bonds and stocks was added to pension fund portfolios. Their purchases as related to new issues sold by corporations, during these years, was 20 percent. During the same period, life insurance companies, which hold about 10 percent of all corporate securities out standing, added to their investments about twice as great an amount, or $11.4 billion. These figures relate to total securities and are of more significance when broken down between stocks and bonds, as indicated in Table 12 and discussed in the following paragraphs.
Net additions to corporate bonds 1/ outstanding during the four years 1951-1954 amounted to about $18 billion (see Table 13). For the period as a whole, life insurance companies were the most important purchasers, adding $10.7 billion to their bond portfolios or as related to net issues, a ratio of 60 percent. However, net purchases of bonds by this group showed a considerable decline in 1954, amounting to $2.1 billion, as com pared with $2.7 billion, $3.0 billion and $2.9 billion in each of the three preceding years. The 1954 decline reflected not only a lower volume of net bond flotations but also a greater interest in mortgage investments where higher yields were obtainable. Corporate bond investments by pension funds, on the other hand, have displayed a slight growth, from $700 million in 1951 to $1,0 billion in each of the years 1952 and 1953, and in 1954 amounted to $1.1 billion. The ratio of their net purchases to net bond issues coming on the market was 30 percent in 1954, compared with 17 percent in 1951. Purchases by other institutional groups and individuals have been of less importance,
Table 13 also shows that although purchases of preferred stock by pension funds are not very large, they are rather significant in relation to the total and have been maintained at a fairly steady rate in each of the years covered by the survey. In the year of largest purchases, 1953, they amounted to $66 million, and in 1954, were $55 million. During the years 1953 and 1954, life insurance companies were the most important buyers of preferred stock, their purchases amounting to approximately, $135 million each year and in relation to new preferred stock offerings, were about two-fifths of the total.
Greatest interest, in light of the sharp rise in the stock market in 1954, has centered in the amount of common stock purchases by corporate pension funds and other institutional groups. During 1954, corporate pension funds purchased, on balance, $588 million worth of common stock, both own company and other companies. This compares with $428 million the preceding year, $382 million in 1952 and $310 million in 1951. The available evidence indicates much smaller net purchases for the years prior to 1951. Sales of common stock by pension funds have gere rally been small although there was an increase in 1954.
Purchases and sales of common stock other than own company stock for the years 1951 through 1954 for all industry groups are shown below:
(Millions of dollars)
1951 1952 Purchases of common stock
288 371 Sales of common stock
25 31 Net purchases
Aside from individuals, pension funds were the largest group of common stock buyers in 1954. The next highest amount of common stock purchases was by investment companies. A comparison of purchases by corporate pension funds during the four-year period with purchases by other institutional groups and individuals can be made from the data in Table 13. This table indicates that net new common stock issues varied in amount from $2.2 billion in 1951.to $2.6 billion in 1952, $2.0 billion in 1953 and $2.2 billion in 1954. Despite variations in the supply of new issues, however, pension fund investments in common stock mounted each year. For other institutions, as a whole, there was variation in their purchases with the supply, although their purchases were considerably larger in the years 1952, 1953 and 1954 than in 1951. In contrast to the growing investment of institutions in the stock market, total amounts purch?sed by individuals have dropped sharply during this period, from over $1.3 billion in each of the years 1951 and 1952 to $600 million in 1954. According to the recent report of the New York Stock Exchange 1/, the number of individual share owners has increased sharply in recent years. The difference in trend possibly can be explained in the great growth in new investors through thrift and other stock purchase plans, mutual funds, and monthly periodic plans where the holdings are usually rather small,
The breakdown of 1954 common stock transactions of pension funds according to detailed industry is given in Table 14, and in Appendix Table 2 transactions for each of the years 1951 through 1954 according to main industry groups are presented.
Income Invested in Common Stock
For all pension funds other than those of communication companies, which have little common stock holdings or market transactions, the ratio of common stock investments to net income in 1954 was 35 percent, based on aggregate data. This was considerably higher than the similar ratios in preceding years which were: 1951, 22 percent; 1952, 26 percent and 1953, 25 percent. A comparison of the same ratios for various industry groups shows that in each one a substantial rise occurred in the percentage of income invested in stocks. The highest ratios in 1954 were for the
See Who Owns American Business', 1956 Census of Shareowners,
funds of electric and gas companies and transportation firms, each exceeding 40 percent. Among the other principal industries, the ratio of income invested in common stock were not much different than the 35 percent figure indicated for all industries (except communication). The ratio for the manufacturing group as a whole was 34 percent, but within that industry there were fairly wide differences. For instance, in the food and beverages group, iron and steel, and fabricated metal products the ratios exceeded 40 percent, whereas in chemicals, petroleum and coal products, the ratios were less than 20 percento
Further information on the proportion of net income invested in common stocks is available from the sample data. A frequency distribution shows that in 17 percent of the cases, no purchases of common stock were made and in 3 percent there was a liquidation of common stock holdings during 1954. For 28 percent of the funds which bought stock, up to one-quarter of net income went into this type of security; for 29 percent of the funds the ratio was between one-quarter and one-half of net income; and in 22 percent of the funds more than 50 percent of income went into common stock. The distribution within this latter group was: 11 percent made purchases ranging from one-half to three-quarters of net income; 4 percent had purchases between three-quarters and 100 percent; and 7 percent made purchases in excess of net income. In this last group, not only was the entire 1954 net income used to buy common stock but other assets including U. S. Government and corporate bonds were sold and the proceeds reinvested in common stock.
Saving of Individuals through Pension Funds
The present survey made possible for the first time a segregation of individuals' saving in the form of increased equity in corporate pension funds assets. These data were incorporated in the Commission's 1955 annual release on saving. 1/ Up to the time of the survey, it was necessary to include this type of saving with individuals' saving in : the form in which pension fund assets were invested. As it is the purpose of the study on individuals' saving to show where ever possible the exact item, claim, or asset in which the saving occurs, the new method is a distinct improvement for saving analyses.
Coincident with this new arrangement, a breakdown of saving in private life insurance between increased equity in insured pension reserves and all other life insurance reserves was presented. Annual data on insured pension reserves are prepared by the Institute of Life Insurance 2/ the amount of these reserves at the end of 1954 being indicated in Table I.
See 'Fact Book', 1955, Institute of Life Insurance, page 33.