Economic expectations are modestly positive over the medium term, credit conditions are improving, but valuations are expensive. Our view remains that we are in the Downturn phase, but we recognize that there is meaningful support for risk assets.
Equity markets posted strong returns for the month of July, continuing their recovery despite troubles with reopening and increases in virus cases in parts of the US. For some equity markets, they ended July where they began 2020.
Markets have largely shrugged off news of renewed virus outbreaks in much of the US and the continuation of large, seemingly uncontrolled outbreaks in many significant emerging market countries such as Brazil, India and Mexico. In the US, markets seem to be in a “heads I win, tails you lose” frame of mind with respect to renewed outbreaks…
Against a backdrop of weak credit conditions, expensive valuations and volatile economic expectations, we remain in the Downturn phase. As some countries begin to re-open there are early signs of economic improvements and the overwhelming policy response cannot be overlooked. The situation remains fragile as demonstrated by a recent surge in US cases. We continue to advocate exposure to high quality assets, as well as areas of the market supported by policy.
Long-term corporate bond yields continued their downward trend in June and are now down approximately 0.50% in 2020. Growing optimism over easing lockdown restrictions and early economic recovery signs pushed both U.S. and international stock prices higher, with emerging markets performing especially well.
We believe we are still in the Downturn phase, but vigilance is required using this framework in these unprecedented times. Current economic damage is likely to have a material, lasting impact, as unemployment climbs and corporate restructuring becomes commonplace. But the significant policy response is a positive force on markets and cannot be overlooked.
The ongoing pandemic and associated economic crisis continued into May, with many of the trends we saw in April continuing for a second month. Those trends include a volatile, although rebounding, equity market and pension discount rates that ended the month where they began.
Structured Equity can Increase Funded Status – A Successful Investment Strategy for the Past, Present, and Future
Challenging investment markets in 2020 have undone years of improvement in the funding levels of corporate defined benefit pension plans. The funding level of a typical plan, as noted in a recent study by Mercer, fell from 88% at the end of 2019 to 80% at the end of April . However, pension plan sponsors do not need to accept that significant funding level declines are the inevitable consequence of tough markets. It is possible to do much better.
River and Mercantile (R&M) announced that Michael Clark, Managing Director and Consulting Actuary, is the 2020 recipient of the Geoffrey Heywood award. Given by the International Association of Consulting Actuaries (IACA), a section of the International Actuarial Association which is the worldwide association of professional actuarial associations, the award recognizes a young consulting actuary for their significant contributions to the public and actuarial profession.
Total pension buyout sales totaled $4.5 billion in the first quarter of 2020, a decrease of 6% compared to the first quarter of last year but still only the second time first quarter sales in a given year have eclipsed $4 billion.