Retirement Update – July 2020
- Discount rates were down slightly in June, with the average plan’s rate down ~0.10%. This will translate into pension liability increases of 0.7% – 1.5%.
- Equity returns continued their impressive upward trend and posted strong gains to end Q2.
- Additional volatility as a result of another wave of the coronavirus could pose more challenges in the months ahead.
June 2020 Summary
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.
As a result of these market movements, most pension plans should have seen a slight increase in their funded status, although the direction and magnitude will depend on the plan’s investment portfolio and funded status. Plans with larger equity exposure and well-funded plans will have larger funded status improvements for the month. However, year-to-date most plans are still worse off than where they started.
Discount Rates & Asset Returns
Discount rates decreased by another 0.08% in June. Current rates are now down 0.52% since year-end 2019 and are 0.81% lower than rates from this time last year. The FTSE pension discount index finished June at 2.70%.
Global equities were volatile but ended the month in positive territory (especially emerging markets) as economies continued to reopen. Interest rates remained low and spreads tightened causing bonds to also post gains. The dollar edged lower amid an uncertain U.S. economic outlook, as some states put reopening plans on hold.
What’s New at R&M?
R&M Managing Director’s Author PLANSPONSOR Article
Managing Directors, Tom Cassara and Michael Clark, discuss why pension plan sponsors should pay attention to liquidity and how they may do so in this PLANSPONSOR article.
Our July FOURcast
- In June, equity markets rose modestly while global corporate bonds also increased in value.
- Successful efforts to contain COVID-19 in many developed countries led to the reopening of some economies.
- However, it is clear this reopening process will not be smooth, as the swiftly rising case levels in much of the US show. Viral outbreaks are still out of control in several large developing countries.
- Measures of economic activity continued to improve, and governments and central banks continue to provide support, though maintaining this support will require political decisions in some places, most notably the U.S.
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.