Pension Indicator Updated for July 31, 2020

The Knowns and Unknowns

By: Grant Guyuron, Senior Managing Director, Clearstead

Investors are faced with many challenges today. We know that interest rates are historically low, particularly for government bonds. We also know that on a forward price to earnings basis, equity markets appear expensive relative to historical averages of that measure, in part because of a swift rebound in prices since March lows. But there are other factors that may meaningfully impact markets that we certainly do not know:

  • The timing of availability of an effective vaccine for COVID-19 that can be broadly distributed
  • When people and companies will return to more normal behavior
  • The results and impact of the U.S. elections in November

Trying to handicap what will happen, when and how the economy and markets will react, is a real challenge for plan sponsors and investors everywhere. So, this is the time when maintaining discipline and ensuring ample liquidity becomes key. Plan sponsors should consider balancing long-term objectives with near-term liquidity needs. It may be prudent to maintain a higher than normal cash balance or rebalance between different manager styles. Focusing on a glide-path, funded status, and asset/liability matching can remove some of the emotion and behavioral missteps to which humans are prone. We expect volatility to be high in the coming months, and we are preaching discipline in preparation.

July was a good month for asset growth, but many plan sponsors also experienced growing liability values as interest rates dropped. Equity markets were broadly positive, led by the emerging markets (MSCI Emerging Markets +8.9%). Fixed income markets were also positive in the month as interest rates declined further and credit spreads narrowed. Duration exposure was in favor in the month, with LDI-focused portfolios returning 5.7% compared to growth-oriented portfolio which returned 3.8%, as seen below. Meanwhile, our models show liability values increased between 4.3% and 7.9% depending on the plan status.

From all of us at Findley and Clearstead, we hope everyone and their families are safe and healthy. 

As always, thanks for reading, and drop us a comment on how we're doing.

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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.

Year to Date Investment Mix 
Plan TypeGrowthBalancedLDI LiteLDI
Frozen (for several years) -11.5% -8.7% -5.1% -1.2%
 Recently Frozen -14.7% -11.9% -8.5% -4.7%
 Ongoing Traditional -17.6% -14.9% -11.6% -8.0%
 Cash Balance -12.3% -9.4% -5.9% -2.0%
Month-over-Month Investment Mix 
Plan TypeGrowthBalancedLDI LiteLDI
 Frozen (for several years) -0.7% -0.6% 0.2% 1.2%
 Recently Frozen -2.6% -2.5% -1.7% -0.8%
 Ongoing Traditional -4.4% -4.4% -3.6% -2.6%
 Cash Balance -1.0% -0.9% -0.1% 0.9%
12-Month Change Investment Mix 
Plan TypeGrowthBalancedLDI LiteLDI
 Frozen (for several years) -8.9% -6.2% -2.7% 1.0%
 Recently Frozen -13.0% -10.5% -7.1% -3.6%
 Ongoing Traditional
-16.8% -14.4% -11.2% -7.9%
 Cash Balance -9.7% -7.1% -3.6% 0.0%


Frozen Plan 7 31

Recently Frozen Plan 7 31

Ongoing Plan 7 31

Cash Balance 7 31

Disclosure