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Ontario Teachers' Pension Plan is shifting its massive portfolio into global markets and inflation-sensitive investments, based on concerns that asset classes such as equities and infrastructure are overvalued.

Teachers outlined the shift in strategy, now two years in the making, on Wednesday as it announced financial results for the first half of the year, when the fund posted a net return of 3.2 per cent. Net assets reached $193.9-billion, a $4.4-billion increase from the end of last year.

Teachers chief executive Ron Mock said the fund is steadily “increasing its exposure to inflation-sensitive assets on expectations of rising inflation” and said the holdings were some of its best-performing investments through the first half of the year.

Over a conference call, Mr. Mock referred to several sectors as “expensive,” including equities and infrastructure. The pension fund CEO weighed in as U.S. stock-market indexes flirt with record highs and market watchers debate how much longer a 10-year equity bull market can last. Mr. Mock said “the world has a lot of dry powder” earmarked for investments in areas such as infrastructure and private equity and Teachers is taking a cautious approach to committing capital in these areas.

Teachers breaks out its “inflation sensitive” investments in areas such as commodities and natural resources as a distinct group. On June 31, it allocated 16 per cent of its capital to the sector, compared with a 6-per-cent allocation at the end of 2016, when the fund began to shift its asset mix. Publicly traded stocks were 18 per cent of the portfolio at the end of June, compared with 22 per cent of assets at the end of 2016.

Looking ahead, recently appointed Teachers chief investment officer Ziad Hindo said the fund plans to continue allocating an increasing amount of capital to foreign markets. He said: “The benefits of diversification and globalization are clear as different asset classes perform differently based on shifting markets.”

The pension plan, which has 1,100 employees, is considering expanding the number of investment professionals at overseas offices in London and Hong Kong and increasing the depth and number of partnerships it strikes with global asset-management firms.

Teachers currently invests in 50 countries and 35 global currencies, while reporting results in Canadian dollars. Shifts in currency markets can have a significant impact on the fund’s performance, particularity on short-term results. In the first six months of the year, currency moves added 0.7 per cent to performance at the fund, which translated into a gain of $1.4-billion, mainly owing to appreciation of the U.S. dollar.

Teachers provides retirement income to 323,000 retired and active teachers. The average member of the plan draws a pension for 32 years, after contributing to the fund for 26 years. In 1990, members drew a pension for an average of 25 years after contributing for 29 years.

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