Throughout August investor sentiment was boosted by the potential for a Coronavirus vaccine and a Q2 earnings season that surpassed expectations. Risk assets rallied, with developed markets (+6%) outpacing emerging markets (+2%). UK equities lagged other markets, rising only 2% as fears over the virus containment and stalled Brexit negotiations continued to concern investors. Credit spreads, which had widened in the first quarter, continued to narrow resulting in positive performance, despite global government bond yields rising. UK government bond yields rose 26bps at the 20 year point meaning liability values fell over the month. This meant that the PPF 7800 Index increased over the month to 92.6%, up 2.7% since July. Despite the market recovery, the average UK scheme's funding level is still 0.4% below where it was at the end of August 2019, while aggregate deficits have increased by over £10bn.
Covid-19 continues to dominate the market narrative. Given the high level of uncertainty over the virus - particularly over concerns of a second wave and the viability of a vaccine - there will be market volatility for some time yet. Increasingly trustees are considering fiduciary management as a way to improve their investment arrangements and move nimbly to take advantage of market opportunities. In contrast to other approaches, schemes employing fiduciary management have enjoyed funding level improvements over the last 12 months, vindicating the decision to delegate some investment responsibility.
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