Monthly Retirement Update

Retirement Update – November 2019

Nov 7, 2019 | Defined Benefit, Industry Updates

Key Takeaways:

  • Discount rates were little changed over the past month.
  • Equity returns, especially international and emerging market returns, had noticeable gains.
  • October funding levels most likely modestly improved as assets outpaced liabilities.

October 2019 Summary

Despite the Fed lowering rates in October, long-term corporate bond yields stayed relatively flat for the month. At the same time because of a relative calm on the geopolitical front, equity returns posted a decent month led by international and emerging market stocks. When taken together, most plans that have some return seeking assets in their portfolio would have seen funded status increases over the month.

Discount Rates & Asset Returns

Discount rates remained relatively flat in October, only increasing 0.003%. However, current rates are still down over 1% since year end 2018 and are 1.3% lower than rates from this time last year. The FTSE pension discount index finished October at 3.14%.

Softening trade and geopolitical tension, as well as improving economic data, spurred a risk on appetite. Given the rally, emerging market equities increased by 4.2%, outperforming both U.S. equities and international developed equities which returned 2.2% and 3.6% respectively. Bond markets were primarily flat for the month, with the exception of high yield bonds which saw a small increase in returns at 0.5% as spreads compressed. As a result, equities and other risk assets performed well, which benefited funding levels for the month.

What’s New at R&M?

R&M Managing Directors featured in BenefitsPRO and CFO Magazine

Managing Director, Michael Clark, wrote a piece for BenefitsPRO on the problems pension plans can pose in M&A transactions if not dealt with properly. Read More

Managing Director, Tom Cassara, shares his views on the MEP provision and its appeal to small employers in this CFO article. Read More

 

R&M Managing Director Appointed as President of the Conference of Consulting Actuaries

Managing Director, Michael Clark took over as the President of the Conference of Consulting Actuaries following the conclusion of the organization’s Annual Meeting in San Antonio, TX at the end of October. Read More

Ask R&M!

Q: With interest rates used to value pension liabilities at historical lows, do liability driven investment strategies still make sense?​

A: The short answer is a resounding “Yes!” Although to effectively protect against the effects of interest rate movements, it may require plan sponsors to look beyond the typical strategies available in the marketplace in favor of more sophisticated strategies.

For plan sponsors that want the ability to maintain the upside potential of interest rate rises but still be able to protect against interest rates going lower there are strategies to explore. In October we wrote about one of these strategies. Using interest rates collars would allow plan sponsors to participate in the upside if rates do go up while protecting themselves against further funded status losses if rates go the other way. Another strategy that is being implemented globally is the use of swaptions. These are derivative instruments that effectively give a plan sponsor the option to put in place a liability hedge.

 

 

Have a question for R&M? Please submit it to usa@riverandmercantile.com and look for a possible answer in next month’s update!

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.

Share:

R&M Newsletter

Subscribe to receive news and updates in the defined benefit, defined contribution, or investment areas of the retirement industry.