Retirement Update – May 2020
- Markets experienced a strong rebound in April after COVID-19 roiled markets in March. While the virus continued to spread, some areas began to see lower infection rates and reopen economies
- Unprecedented global government and central bank responses to the crisis provided support, but uncertainty and volatility remain
- Funding levels generally were flat or increased somewhat as the rally in the equity markets offset increases in liabilities
April 2020 Summary
The novel coronavirus, government and central bank stimulus and a start to reopening economies in some areas drove the markets in April. Additionally, oil markets collapsed as an oversupply caused the price of oil futures to fall into negative territory for the first time in history. Equities looked past the oil market flare up and delivered strong positive returns, with U.S. markets up 13%, recovering close to 60% of the decline. International equities also rebounded, although not as much as the U.S. Long-term corporate bond yields decreased for the month as Treasury yields declined and credit spreads narrowed, causing liabilities to increase.
Putting it all together, plans with equity exposure could have seen some increases in funded status for the month. Those plans with heavy allocations to liability matching assets and a better funded status position to start with would have seen little change to the funded status.
Discount Rates & Asset Returns
After a rebound in March, discount rates decreased by 0.32% in April, as volatility in rates continues. Current rates are now down 0.43% since year end 2019 and are 1.11% lower than rates from this time last year. The FTSE pension discount index finished April at 2.80%.
Markets showed swift recovery with U.S. equities rallying over 13% and foreign developed equities increasing 6.5%. Corporate bonds rebounded as the Fed announced significant bond purchases and lending programs. Treasury yields decreased while credit spreads narrowed as risk aversion eased slightly. This provided for positive fixed income returns.
What’s New at R&M?
WEBINAR: Emerging from Crisis – 10 Actions for Pension Plan Sponsors
What should pension plan sponsors be doing now in light of what has happened in the past few months? This free webinar discusses 10 important items that plan sponsors should address now to ensure that they come out of the current crisis on solid ground.
WEBINAR: Innovative Investment Strategies for Volatile Times
We find ourselves in difficult times. The global effects of COVID-19 have wreaked havoc on investment markets, on daily life, and on institutional investment pools such as pension funds and endowments. Treasury yields have plummeted, credit spreads have widened, and major equity indices have moved down and up at historic rates. Find out what institutional asset owners can do now to not only weather the storm, but to also thrive in the face of unparalleled difficulty in this webinar.
In this case study, Tom Cassara and John Chevalier have put together their thoughts on plan liquidity and what trustees and plan committee members should do to assess their situation.
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.