Pension Indicator Updated for September 30, 2021
September Swoon
By: Brian Hrabak, CFA, Clearstead
Volatility returned to the markets in September. Investors digested weaker economic data, negative headlines out of China’s property sector, politics surrounding the ongoing debt ceiling, and a hawkish tone out of the Federal Reserve’s last meeting. The Conference Board revised down their third quarter US GDP estimate to 5.5% from their 6.6% during the second quarter1. The US jobs report also disappointed, reflecting 235,000 jobs added in August, well short of the 733,000 projected2.
Treasury yields closed higher as the markets reacted to the Fed’s more hawkish comments. The Federal Reserve’s meeting minutes indicated a willingness to respond to growing inflationary pressures by lifting borrowing costs as early as next year and tapering bond purchases as soon as next month. The 10-year Treasury yield rose 18 bps during the month to close at 1.49%3. Investment grade corporate spreads were little changed for the month but did tighten just slightly.
Equity market returns were negative across the board in September with the S&P 500 -4.7%, the MSCI EAFE -2.9% and MSCI Emerging -4.0%3. Within fixed income, rising interest rates led to the Bloomberg Aggregate Bond Index declining -0.9%. The Bloomberg Long Govt/Credit Index returned -2.3% for September and -4.6% YTD3. The higher interest rate environment resulted in a liability decrease of 1.2%-2.2% for September which helped to partially offset asset losses of between 2.2%-2.7%. Except for fully hedged pension plans, strong year-to-date equity markets, coupled with higher interest rates, have helped boost funded ratios as the S&P 500 Index has returned 15.9% YTD through September3.
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Information provided in this article is general in nature, is provided for informational purposes only, and should not be construed as investment advice. Performance data represents past performance. Past performance is not indicative of future results.
1www.conference-board.org
2US Bureau of Labor Statistics
3Bloomberg
| Year to Date Investment Mix | ||||
|---|---|---|---|---|
| Plan Type | Growth | Balanced | LDI Lite | LDI |
| Frozen (for several years) | 10.9% | 8.4% | 5.2% | 1.6% |
| Recently Frozen | 12.2% | 9.7% | 6.5% | 2.8% |
| Ongoing Traditional | 13.6% | 11.1% | 7.8% | 4.0% |
| Cash Balance | 11.3% | 8.8% | 5.7% | 2.0% |
| Month-over-Month Investment Mix | ||||
| Plan Type | Growth | Balanced | LDI Lite | LDI |
| Frozen (for several years) | -1.5% | -1.3% | -1.3% | -1.0% |
| Recently Frozen | -1.0% | -0.9% | -0.8% | -0.6% |
| Ongoing Traditional | -0.6% | -0.4% | -0.3% | -0.1% |
| Cash Balance | -1.4% | -1.2% | -1.1% | -0.9% |
| 12-Month Change Investment Mix | ||||
| Plan Type | Growth | Balanced | LDI Lite | LDI |
| Frozen (for several years) | 19.9% | 15.4% | 10.7% | 5.0% |
| Recently Frozen | 20.3% | 15.8% | 11.2% | 5.4% |
| Ongoing Traditional |
20.9% | 16.3% | 11.7% | 5.9% |
| Cash Balance | 20.3% | 15.8% | 11.2% | 5.4% |
