Russell Investments’ representative pension scheme
The key impacts for pension schemes funding levels and commentary on movement.
- The funding level of our representative pension scheme surged upward for most of the period, before dipping at the end of the quarter as interest rates fell significantly, increasing today’s value of the liabilities.
- The value placed on the liabilities increased by 4.9% over the quarter, whilst the positive impact of the hedging portfolio (3.4%) slightly offset this. Growth assets rallied 3.4% in funding level terms, thus increasing the funding level all else equal.
- The growth portfolio recorded a stellar performance over the quarter. Risk assets staged an impressive rebound from December 2018 lows; the allocation to global and emerging market equities proved particularly beneficial to portfolio performance.
- The allocation to credit also contributed. A dovish US Federal Reserve, strong oil prices and optimism over a trade accord between the US and China tightened Investment Grade credit and high yield spreads.
- Over the quarter, we sold our entire US 5-Year Treasury position, capturing the upside from the sovereign bond rally. On the back of this, we added Australian 10 Year Government bonds (on a duration neutral basis) and decreased our Australian dollar exposure. With a benign central bank outlook - with low inflation and sluggish economic growth, as well as a downturn in housing prices - we see lower bond yields from continued downward pressure on the economy and weakness in the Australian dollar in the short-term. Following this, as a means of offsetting the lack of defensiveness in the Portfolio, we sold a further 1% of the Australian dollar and added to our US dollar exposure.
Evolution of funding level
Data as at 31 March 2019. Source: Russell Investments. For Illustrative purposes only
Quarter four attribution - Chart
Source: Russell Investments. Data as at 31 March 2019
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