Investment - Articles - Twists and turns but UK pension schemes end the quarter up

Developed equity markets were relatively flat over September but had a strong July and August lifting to a return of 6% over the quarter, despite a number of prominent ongoing economic and political storylines.

 By Mark Minnis, Head of LDI, XPS Pensions Group
 US corporate earnings positively have been supported by tax cuts and an increase of the Fed Funds Rate range to 2-2.25% in September. It now exceeds a popular measure of inflation, the ‘personal consumption expenditure index’, so the US is now into positive real returns once more. This puts the US some way ahead of Europe in their journey.
 Emerging markets
 Emerging markets fared less well. The economic and currency difficulties of Argentina and Turkey in August added to China’s trade issues.
 Sterling has picked up from its August historic lows against the USD and the Euro. However, with the direction of Brexit negotiations getting more confusing, not less, the sterling currency story still has some distance to run.
 UK pensions schemes
 Over the quarter a typical pension scheme will have seen an improvement in funding. August saw UK base rates increase from 0.5% to 0.75% with some caution from Mark Carney around when future rises might be in store. The general monetary tightening has had a beneficial impact with yield rises reducing liabilities. This benefit was only partially offset by a modest increase in expected inflation.
 On the asset side, equity exposure will have contributed to returns. Against a backdrop of rising yields, credit performed favourably with investment grade corporate bonds, flat and high yield bonds delivering positive returns over the three months.
 Key considerations for trustees in 2019
 • The CMA aims to publish its final report in December 2018. The remedies proposed go a long way to addressing the issue of cross selling services and conflict of interests, whilst minimising the disruption and cost to the market but what could these remedies mean for your scheme?
 • ESG will be firmly on the agenda. In September 2018 the Department for Work and Pensions (DWP) issued its response to the consultation on changes to the investment regulations for occupational pension schemes. The challenge for trustees will be to ensure they are sufficiently prepared to meet the new requirements within the relatively short timeframe, by October 2019.
 For more details, please click here

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