Monthly Retirement Update

Retirement Update – March 2020

Mar 4, 2020 | Industry Updates

Key Takeaways:

  • Discount rates for the typical pension plan fell another 15 basis points in February. The FTSE Pension Discount Rate Index ended the month at new all-time lows (2.65% for an average duration plan).

 

  • Similar to January, equity markets opened February with positive growth but took an even larger dive in the final week of February as investors panicked about the global spread of coronavirus.  US equities ended the month with the worst week since 2008. High quality fixed income investments posted the highest returns for the month.

 

  • Funded status movements will likely be negative for the month of February, and plans with the greatest exposure to equities will generally see the largest funded status declines due to the equity market drops at the end of the month. Allocations which are largely liability matched may still see a drop in funded status for the month based on the magnitude of the equity market movements.

     

February 2020 Summary

Over the month, pension plan discount rates fell even further from their already all-time lows. Equity markets were off to a positive start but, largely as a result of panic sell-offs surrounding the spread of coronavirus, took a drastic dive the final week of February which resulted in the worst single week of market performance since the 2008 financial crisis. Most plans will see a drop in funded status of at least a few percentage points, depending on asset allocation. Unfortunately March has so far remained volatile and further funded status declines are possible.

Discount Rates & Asset Returns

Discount rates decreased 0.15% in February and are now down 0.46% from year end 2019. Current rates are 1.35% lower than rates at this time last year, as the trend of declining rates continues. The FTSE pension discount index finished February at 2.76 %.

Markets stumbled as the coronavirus spread from China to other countries. US equities fell from recent highs and foreign developed equities plummeted further. Treasuries increased and bond spreads widened causing credit sensitive bonds to decrease. Pessimism towards economic growth hit by the coronavirus revived investors’ fears of recession.

What’s New at R&M?

Managing Director Featured on Bloomberg Radio

Managing Director, Michael Clark, discusses with Bloomberg Radio the recent volatility seen in risk assets and what it means for US pensions.

 

Our February FOURcast

  • It was a challenging month for return seeking assets, despite a strong start, with most global equity markets ending in negative territory. The US was the only notable exception.

 

  • Markets experienced a pull-back in late January, as concerns about the impact of COVID-19 (a type of novel coronavirus) seem to have provided enough of a reason for overextended and expensive markets to fall. Sustained market rallies often take a temporary pause, and we see this as no exception.

 

  • Economic expectations showed some signs of improvement, with data from the US and Germany surprising to the upside.

 

  • Our outlook for 2020 remains positive, with the easing in financial conditions that we saw over 2019 providing a tailwind for markets. This Stablebackdrop is supported by reasonable valuations in certain areas, strong credit conditions and improving economic expectations.

 

 

Click to read our full monthly macro update for February

 

 

Have a question for R&M? Please submit it to usa@riverandmercantile.com

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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