Pension Indicator Updated for September 30, 2016

October 2016: Rates, Debates, and Karma

By: Mike Shebak, Managing Director, Hartland


During September, investors again focused on the Fed and the Fed again pushed back plans to raise the federal funds rate.  However, there was dissent within the committee with three of ten members voting to raise the rate by a quarter-point.  The Fed statement included "the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress towards its objectives".  This could pave the way for a rate hike before year-end.


Americans have one more month of debates (I've got my popcorn ready!), political uncertainty, and ugliness to endure.  Given Fed and political uncertainty, along with typical seasonality of the markets, an increase in market volatility would not be a surprise the balance of the year.


Karma is real.  During my ten, wonderful years as a Clevelander, I have enjoyed, and poked fun, at the dominance that my Detroit Tigers have had over the Cleveland Indians.  It caught up to me this year.  Here's to the Indian's Central Division Championsip and hoping that Matt Klein's article next month toasts a World Series run.

Markets and Pension Indicator

Investors reacted nervously to the potential of higher interest rates.  Market volatility picked up in September but it was much more limited to that experienced earlier this year.  The S&P 500 return was 0.02% whereas U.S. small caps as measured by the Russell 2000 advanced 1.1%.

Foreign equity markets moved higher in September with developed markets represented by the MSCI EAFE Index returning 1.3%1.  Emerging Markets maintained their momentum, returning 1.3% in the month and continue to be the best performing area of international equities this year, +16.4%.

Interest rates ticked up modestly during September, ending the month about where they started.  The 10-year U.S. Treasury yield closed September at 1.60%, up 3 basis points from August1.  The BarCap U.S. Aggregate Index returned -0.06% in September1.  

With the advancement in interest rate levels and modest returns from growth assets, LDI portfolios saw the greatest retraction in funded levels.  Growth oriented portfolios improved their funded status the most.

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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.

January 1, 2016 to Date Investment Mix 
Plan TypeAggressiveBalancedLDI LiteLDI
 Frozen (for several years) -3.6% -2.7% -0.7% 2.1%
 Recently Frozen -6.6% -5.9% -3.8% -1.2%
 Ongoing Traditional -9.9% -9.1% -7.1% -4.6%
 Cash Balance -4.3% -3.5% -1.5% 1.3%
Month-over-Month Investment Mix 
Plan TypeAggressiveBalancedLDI LiteLDI
 Frozen (for several years) 1.1% 0.9% 0.5% -0.1%
 Recently Frozen 1.6% 1.4% 0.9% 0.4%
 Ongoing Traditional 2.1% 1.9% 1.5% 0.9%
 Cash Balance 1.2% 1.0% 0.6% 0.0%
12-Month Change Investment Mix 
Plan TypeAggressiveBalancedLDI LiteLDI
 Frozen (for several years) 2.6%  2.7% 4.3% 6.3%
 Recently Frozen -0.6% -0.5% 1.1% 3.1%
 Ongoing Traditional -3.9% -3.8% -2.3% -0.4%
 Cash Balance 1.7% 1.8% 3.4% 5.4%