Key takeaways
- Discount rates fell during the month of January, with the FTSE Pension Liability Index down about 0.33%.
- Equity markets were up 7-8% for the month showing a strong start to the year.
- Liabilities increased with falling discount rates but were offset with strong returns. Funded status was likely little changed for many plans and improved for those that have a significant weighting towards equities.
January 2023 summary
2023 has had a decent start for pension plan sponsors with a well-diversified portfolio. Even though discount rates pulled back and liability values increased as the long end of the yield curve came down and investment grade credit spreads narrowed, equity markets increased. Optimism that inflation has peaked, and that the Fed would start to slow down its rate increases pushed equity markets higher and long-term interest rates lower.
While equity markets saw positive returns, which was a welcome change from the many down months of 2022, there are many risks that are causing investors to debate whether a recession will soon ensue. All eyes are on the Fed as it is expected to continue increasing interest rates in 2023 to try to slow down inflation and the overall economy and to do so as a soft landing. Despite headline layoffs, the January jobs report surprised many with how strong job growth was and unemployment fell to its lowest levels since the 1960s. This good news has investors fearing the Fed may need to raise rates further than expected and is fueling fears of recession.
Discount rates & asset returns
FTSE pension discount rate index last 12 months
Discount rates pulled back in January, with the FTSE pension discount curve finishing the month under 5.00% to start the year. Even with the decline of approximately 0.30%, the FTSE curve is still up over 1.50% from the start of 2022.
January 2023 investment returns (%)
Markets started 2023 on an optimistic note. Equity markets had a strong month with US equities gaining 6.89%. The bond market also had positive returns with US aggregate bonds gaining 3.08%. Positive market activity was helped with the CPI release showing that inflation is continuing to fall. Rates and credit spreads declined over the month of January, and the US dollar weakened.
Checkout Our Latest Perspectives
-
Unraveling PEP Fee Disparity: Why Understanding the Details Matters
Pooled employer plans (PEPs) are a relatively new retirement savings vehicle that allow multiple unrelated employers to participate in a single retirement plan. By pooling resources, employers can leverage economies of scale typically reserved for larger employers and therefore many plans will find significant cost savings in switching to a PEP. However, there is a […]
-
Pension Investing: How to Invest When Cash Flow is Negative
As baby boomers retire, many pension plans are reaching a point where the amount of money leaving the plan in benefit payments and fees exceeds the sum of incoming contributions and investment income. This is “negative cash flow” and it presents different challenges for an investment committee to consider versus when cash flow was positive. […]
-
Why QDIA’s are a Key Differentiator Among PEP Plans in Today’s Market
Pooled Employer Plans (PEPs) are becoming increasingly popular in today’s defined contribution plan landscape. PEPs are multiple employer plans that allow otherwise unrelated businesses to band together to offer a retirement plan to their employees, sharing the expenses and offloading the administrative and investment burden. However, not all PEPs are created equal, and understanding the […]
INVESTMENT ADVISOR: Investment advisory services are provided by Agilis Partners LLC, an investment advisor registered with the US Securities and Exchange Commission.
The information contained in this document is strictly confidential. The information contained herein may not be reproduced, distributed or published by any recipient for any purpose without the prior written consent of Agilis Partners LLC.
PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS.
The value of investments and any income generated may go down as well as up and is not guaranteed. An investor may not get back the amount originally invested. Past performance is not a guide to future performance. No representation, warranty, or undertaking, express or limited, is given as to the accuracy or completeness of the information or opinions contained in this document by Agilis Partners LLC or any of its partners or employees and no liability is accepted by such persons for the accuracy or completeness of any such information.