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Vermont State Retirement System Doubles Commodity Target

The Vermont State Retirement Systems, with $3.67 billion in assets, said it will double the allocation to commodities to 4 percent from 2 percent, shifting money out of profitable high-yield bond investments.

The fund will transfer $73 million into commodities by April 1, bringing the total to $146 million, said Stephen Rauh, chairman of the investment committee. High-yield allocations will drop to 4 percent from 6 percent, he said. The Bank of America Merrill Lynch Global High Yield Index showed returns of 13.3 percent in the past year.

Now is a “good time to take a little money off the table” from high-yield assets and to boost holdings of commodities, which have lagged behind other assets recently, Rauh said today by telephone. The Montpelier, Vermont-based fund views raw-material investments as part of its long-term inflation hedge, he said.

Since the 2008 financial crisis, the committee has been doing a “pretty dramatic restructuring” of the portfolio to improve its diversification and downside protection make the assets less volatile, Rauh said. The fund began its commodity allocation in January 2010, Matt Considine, the director of investments for the state of Vermont, said by telephone, citing fund data.

“We’re trying to build in more downside protection in the portfolio, and adding commodities initially as part of this restructuring process was a step in that direction,” Rauh said. After a “modest commitment” to commodities, the committee better understands how raw materials fit into the portfolio and can act as a diversifying asset, he said.

The Vermont pension committee manages the assets of pensions for state employees, teachers and municipal employees.

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