Retirement Update – November 2018
- Equity markets made headlines with a global sell off that erased 2018 gains for many indices.
- Discount rates increased significantly during the month, pushing liabilities down.
- A typical plan would have seen funded status deteriorate due to the equity market volatility.
October 2018 Summary
October saw some of the worst equity market performance in recent years, although there has been some recovery into November. The negative impact on funded status due to equities would have been offset to a degree by rising interest rates throughout the month.
Discount Rates & Asset Returns
Rates continued climbing during October, increasing 0.27%. After rising the last two months rates are now up 0.84% since the end of 2017 and the FTSE Index has reached its highest level since March 2014.
Equity weakness was brought on by rising interest rates, a China slowdown and ongoing trade disputes. Emerging markets took the brunt of the losses but most equity markets erased 2018 gains. Credit markets and government bonds also sold off as credit spreads widened and interest rates increased. The Dollar continued to appreciate.
What’s New at R&M?
River and Mercantile Solutions Director Named President-Elect of the Conference of Consulting Actuaries
On October 24th River and Mercantile Director and Consulting Actuary, Michael Clark, assumed the role of President-Elect of the Conference of Consulting Actuaries (CCA).
In his role as President-Elect, Michael will oversee the CCA’s strategic planning efforts. In addition he will represent the CCA at North American Actuarial Council meetings as well as meetings of the International Actuarial Association. He will also continue to provide leadership on the CCA’s board of directors.
Q: What is your view of the recent equity market volatility and how should plan sponsors react?
A: Equity markets around the world fell significantly in October. Commentators point to concerns regarding rising interest rates, trade wars, budget negotiations in Europe and risks of a China slowdown. After a buoyant decade for equity markets since the financial crisis of 2008, investors are rightly concerned that valuations appear high and that markets are vulnerable should economic growth slow. Given this backdrop, we are currently cautious on equity markets.
However, we also note that the volatility seen in October has, looking over long term history, been reasonably common with such corrections often occurring multiple times per year. The past decade has been notably uncommon in that equity volatility has declined with central banks providing support to markets through loose monetary policy.
For sponsors uncomfortable with the funding volatility generated by recent equity market moves, and keen to lock in gains over the past few years, recent conditions may be a prompt to reassess the level of equities held or how they are managed. Although, any decision to alter equity exposure should be made with careful consideration of plan objectives, time horizon, and risk tolerance.
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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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