US Public Pension Funds Increased Allocations to Fixed Income in 2024

US public pension funds are raising their fixed-income allocations, but with equities still holding the largest share of portfolios, US small- and mid-cap stocks could present an opportunity, according to the National Conference on Public Employees Retirement System (NCPERS).

Data from 201 US public pension funds revealed that while allocations to other asset classes declined in the first half of 2024, fixed-income investments saw a sharp increase.

Equities remained the largest part of pension portfolios, averaging a 41.5% allocation, though this was down from 42.4% the previous year. Allocations to alternatives dropped from 34.5% to 29.7%, while cash, cash equivalents and other assets fell from 3.4% to 2.7%.

In contrast, fixed income was the only category to see an increase, rising to 26.1% — an increase from 19.7%.

With equities still the dominant allocation for pension funds, NCPERS also identified potential opportunities in US small- and mid-cap stocks.

It noted that from a fundamental perspective, Wall Street analysts expect small-cap growth to strengthen in 2025 for the first time in several years, driven by attractive valuations and improving fundamentals.

In addition, mergers and acquisitions activity was strong in 2024, which is often a key signal for small-cap investors because it reflects what large-cap companies are viewing as attractively valued assets.

NCPERS also noted that the ongoing trend of onshoring has seen more U.S. multinationals bringing their products, services, and intellectual property back to the U.S., driven by rising tariffs, supply-chain disruptions, and global geopolitical tensions.

This shift presents a unique opportunity for smaller, US-focused companies to benefit from job creation, infrastructure investment, and broader economic stimulus driven by capital inflows.