Economic activity continued to rise in July on the back of lockdowns gradually being lifted, albeit slightly slower than anticipated due to increasing rates of new infections. Long-term inflation expectations rose further in July, leading to increased pension scheme liabilities. Risk assets experienced mixed performance, with positive performance from credit assets due to tightening spreads but mixed equity market performance with significant regional differences. This led to asset values remaining flat over the month. This, coupled with increased liabilities means that the aggregate funding level of UK Pension Schemes now stands at 89.9%, down 1.1% since June and at their lowest levels this year. Scheme funding levels are even further off their high of 98.0% at the end of 2019 despite the recent rally in growth assets. Indeed, funding levels are still some 2.6% off where they were at the peak of the coronavirus market fallout in March.
Asset values were helped by US equity gains, supported by robust earnings from companies such as Amazon, Apple and Facebook rather than the macro backdrop. UK equities however, fell as fears of a second wave weighed on investor sentiment; the FTSE 100 fell 4.2% over the month whereas the S&P 500 rose 5.6%. Central banks were less active than they have been in previous months, having already flooded the market with liquidity and taken rates closer to their lower bounds.
The volatility in markets experienced on the back of Covid-19 may be giving rise to an increased number of clients considering fiduciary management. We have seen a 170% growth in clients considering fiduciary management year to date compared to the same period last year.
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