Pension Indicator Updated for July 31, 2016

July 2016: “LDI Winning Gold”

August 2016:  LDI Winning Gold

By: Mike Shebak, Senior Managing Director, Hartland

The 10-year US Treasury began 2016 yielding 2.27%1.  The 10-year closed July yielding 1.45%1.  Long duration bonds are up big through July.  This has driven returns in portfolios with meaningful allocations to liability hedging, long-duration bonds. 

LDI is winning gold so far this calendar year.  LDI Light portfolios, with approximately 60% fixed income, are up approximately 9-10%.  Full LDI portfolios, with approximately 80% to long duration, are up approximately 12-14%.  More traditional, balanced portfolios seeking growth are up approximately 6-7%. 

Brexit has been the primary reason for lower domestic interest rates.  The Fed once again left interest rates unchanged in July stating it was “prudent to wait” for more data. The Fed’s comments were cautious, yet generally positive, indicated by moderate economic growth and a strengthening labor market. In just a few short weeks since Brexit, the market has changed its stance and is pricing in an increased chance of a Fed rate hike by year-end. 

Time will tell what happens to interest rates.  For now, a little past the half-way mark, LDI is leading the way on investment returns and has also protected plan funded statuses better than other portfolio types.

1 Bloomberg

Thank you for checking out our website. Feel free to drop us a note and let us know your impressions of the site or how we can apply this analysis specifically to your situation.

This email address is being protected from spambots. You need JavaScript enabled to view it. or Hartland to discuss this information further.

For more information on the development of the Pension Indicator, please see our Disclosure document.

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.

January 1, 2016 to Date Investment Mix 
Plan TypeAggressiveBalancedLDI LiteLDI
 Frozen (for several years) -4.8% -3.8% -1.3% 2.0%
 Recently Frozen -8.2% -7.2% -4.8% -1.6%
 Ongoing Traditional -11.7% -10.7% -8.4% -5.3%
 Cash Balance -5.7% -4.7% -2.2% 1.1%
Month-over-Month Investment Mix 
Plan TypeAggressiveBalancedLDI LiteLDI
 Frozen (for several years) 1.3% 1.1% 1.2% 1.2%
 Recently Frozen 0.6% 0.4% 0.5% 0.5%
 Ongoing Traditional -0.1% -0.3% -0.2% -0.2%
 Cash Balance 1.2% 1.0% 1.0% 1.0%
12-Month Change Investment Mix 
Plan TypeAggressiveBalancedLDI LiteLDI
 Frozen (for several years) -5.8%  -4.2% -0.8% 4.2%
 Recently Frozen -8.8% -7.3% -4.0% 0.9%
 Ongoing Traditional -12.1% -10.6% -7.4% -2.7%
 Cash Balance -6.7% -5.1% -1.8% 3.2%

Frozenmanyyears0716

Recentlyfrozen0716

Ongoing0716

CashBalance0716

Disclosure