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    US pension market quarterly

    US pension market quarterly

    A statistical and qualitative review of Q1 2021 and investment outlook

    Hope returned to markets in Q4, with announcements from several major pharmaceutical companies that effective vaccines for the coronavirus were available for widespread distribution. Against this backdrop the S&P 500 Index rose to all-time highs, driven by a rotation from tech to value.

    Although this is undoubtedly good news, the economic damage from the coronavirus remains significant and, for investors, this likely means a structural change for interest rate markets that could last for years to come. We believe the Federal Reserve (Fed) will take a very cautious approach to monetary policy in the coming cycle, and its new policy framework provides it the flexibility to do so. When we look at the outlook for interest rates, some lyrics from The Who spring to mind – “I can see for miles and miles and miles and miles….”. Rates are not expected to rise for a very long time.

    If yields are to remain in a new lower range for a considerable period, then investors may need to make their assets work harder, and we believe this should underpin the demand for credit.

    • We outline the 10 key issues that we believe defined 2020.
    • When we review 2020, it is apparent that the year could have been disastrous for many pension plans if the Fed had not taken such unprecedented action. In what was effectively a real-world stress test, the benefits of liability-driven investment (LDI) and liquidity strategies were notable.
    • In pension news, new rules on ESG investment could increase pressure on plan fiduciaries to ensure that decisions are made purely for financial considerations. We highlight how our approach to investing responsibly, in particular using ESG as a risk management tool, helps our clients with their financial goals.
    • In pension news, we discuss the Department of Labor’s ‘final rule’ on financial factors in selecting plan investments which removed references to environmental, social and governance (ESG) factors.
    • We discuss the potential for segment rate ‘corridors’ to widen in 2021 – this could lead to an up to 5% increase in plan liabilities in 2021, purely for technical reasons.
    • In our solutions section, we examine the three key considerations for LDI in 2021.
    • In credit, we look at how credit ratings within the S&P 500 Index have evolved over time, and why we believe some investors need to reconsider the way they think about BBB credit.
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    I can see for miles and miles and miles and miles and miles...

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    I can see for miles and miles and miles and miles and miles...

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    The Who, 1967

    Reviewing 2020

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