“Pension schemes will have breathed a sigh of relief in January as funding levels ended the month up, despite a bumpy close to the month for growth assets. The PPF 7800 Index ended the month at 96.5%, up 1% since the start of the year. This was despite growth assets falling over the month, because liabilities fell by more as gilt yields rose. 10 year yields closed the month at 0.39%, up 0.14% and 20 year yields were at 0.93%, an increase of 0.15%. However, we caution against pension schemes taking this as a sign that rising rates will save funding levels. With the Bank of England again raising the potential of negative rates, schemes should continue to ensure that they are well protected against priced-in interest rates rises not materialising.
“More broadly, January reinforced the key factors which have dictated market sentiment over the last year. First, the support of governments and central banks in easing economic conditions, largely due to monumental fiscal stimulus. Secondly, the continued risk of COVID-19. Developed market equities fell by 1%, despite vaccine optimism. This was apparent in the UK, where the success of the vaccine programme was unable to offset the impact of the continued lockdown, with the FTSE All Share index ending the month at -0.8%.
“There were however, some pockets of optimism. Emerging markets ended the month with a 3% gain largely due to strong returns from Greater China. This was mainly driven by the continuation of domestic activity and trade normalisation such as high global demand for work-from home technology and health care equipment.
“With continued uncertainty on the economic restart, post pandemic, staying well-balanced will add resilience to portfolios. Additionally, delegating the management of pension schemes allows for complete oversight of the portfolio, which can lead to a more holistic view and better funding levels. We believe this to be one of the reasons outside the CMA order that we have seen fiduciary management search activity remain high.”
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