Monthly Retirement Update

Retirement Update – February 2020

Feb 11, 2020 | Industry Updates

Key Takeaways:

  • Discount rates for the typical pension plan fell 30 basis points in January. The FTSE Pension Discount Rate Index ended the month at all-time lows (2.8% for an average duration plan).

 

  • Equity markets started the month strong but took a dive in the final week of January as investors worried about the potential economic impacts of the coronavirus outbreak. High quality fixed income investments posted the highest returns for the month.

 

  • Funded status movements will depend on equity allocations and plans with the greatest exposure to equities will generally see the largest funded status declines. Allocations which are largely liability matched should see a relatively stable funded status for the month.

January 2020 Summary

To kick-off 2020, pension plans witnessed discount rates reversing course and falling further to all-time lows. Volatility returned to equity markets after months of relative calm. International equities were down for the month over concerns of the coronavirus impacting the global economy. Plans heavily interest rate hedged should see a stable funded status but many more plans will see a decline in funded status of a few percentage points. The good news is that markets have already started to rebound thus far in February.

Discount Rates & Asset Returns

​Discount rates decreased sharply in January, dipping 0.31%. Current rates are 1.16% lower than rates at this time last year, as the trend of decreasing rates continues. The FTSE pension discount index finished January at 2.91%, the lowest it has ever been.

Volatility returned to the markets in January as worries of the coronavirus spooked investors. Foreign developed and emerging market equities slid while US equities were relatively flat. With the turn in sentiment, government bonds outperformed equities and more risky fixed income. The Fed kept rates unchanged with recovering manufacturing and low unemployment data.

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Our January FOURcast

  • 2019 was a strong year for markets, however annual returns overall were bolstered by a low starting point after a weak end to 2018.

 

  • In December, a “phase one” deal was agreed between the US and China, which rolled back some planned US tariffs in return for trade concessions from China, lifting markets.

 

  • However, there are ongoing geopolitical concerns for the market, and a comprehensive trade deal is far from being finalized, therefore volatility around headlines can still be expected.

 

  • Our outlook for 2020 is strong, with a Stable backdrop continuing, supported by reasonable valuations, strong credit conditions and economic expectations improving.

 

  • The easing we saw in 2019 from central banks and falling bond yields are additional tailwinds for markets so we are optimistic about returns in 2020.

 

 

Click to read our full monthly macro update for January

 

 

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SECURITY INDICES: This presentation includes data related to the performance of various securities indices.  The performance of securities indices is not subject to fees and expenses associated.  Investments cannot be made directly in the indices.   The information provided herein has been obtained from sources which River and Mercantile LLC believes to be reasonably reliable but cannot guarantee its accuracy or completeness.

CONFIDENTIAL:  For addressee use only, not to be disclosed to any other person without express consent from River and Mercantile LLC.  Past performance cannot be relied upon to predict future results.  River and Mercantile LLC is an investment advisor registered with the US Securities and Exchange Commission.

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