MARKET COMMENTARY | September 2017 | FEATURING Wesley Phoa
• September’s Treasury market action
• Credit outlook for technology companies
• Financial markets efficiency, or lack thereof
MARKET COMMENTARY | August 2017 | FEATURING Wesley Phoa
• August’s Treasury market rally
• Credit outlook for metals and mining companies
• Implications of QE withdrawal for LDI investors
MARKET COMMENTARY | July 2017 | FEATURING Wesley Phoa
• July’s rallying bond market activity
• The outlook for the retail sector
• E-commerce’s impact on brick-and-mortar stores and its implications for LDI investors
MARKET COMMENTARY | June 2017 | FEATURING Wesley Phoa
• June’s muted bond market activity
• The outlook for the health care sector
• Rising volatility expectations for LDI investors
MARKET COMMENTARY | May 2017 | FEATURING Wesley Phoa
• May's bond market activity
• The outlook for the utilities sector
MARKET COMMENTARY | April 2017 | FEATURING Wesley Phoa
• April's bond market activity
• The outlook for the communications sector
INVESTMENT INSIGHTS | January 2016
To contribute, or not? It's a big question for plan sponsors. Our experience working with sponsors suggests that it's typically optimal for them to make some contributions — especially from an after-tax perspective. What’s more, there’s good reason to think that the economics of making contributions will become still more compelling over the next few years. Underfunded plans will face a large and growing cash penalty for deferring contributions. Because the economics are swinging strongly in favor of making contributions, plan sponsors with bond market access may even have an incentive to borrow to fund the plan.
INVESTMENT INSIGHTS | January 2016
For a long time, a rise in interest rates has been discussed and expected. While the Federal Reserve has finally begun its move away from its near-zero interest rate policy and a further rise in rates may now seem imminent, the past few years have for some sponsors underscored the fact that “being early” can prove expensive. Plan sponsors who want to prepare for higher rates should not pick strategies that are too sensitive to the precise timing of a rise in rates.
INVESTMENT INSIGHTS | January 2016
The Federal Reserve has finally begun its move away from its near-zero interest rate policy, and many plan sponsors may expect interest rates to rise further. From an LDI perspective, what should you do if and when rates rise, and discount rates increase accordingly? This, it turns out, is a simple question with a far-from-simple answer. Interest rates can go up for a variety of reasons. The economic backdrops in which liability discount rates may rise can be surprisingly different and, consequently, so can the behavior of asset prices.
INVESTMENT INSIGHTS | September 2014 | FEATURING Wesley Phoa & E. Luke Farrell
Pension Plan Volatility*
Liability-driven investing has changed over the past decade. Defined benefit plan sponsors have gradually moved from broad mandates with considerable latitude to more tightly designed and benchmark-aware mandates. In recent years, some plans have taken this a step further and stipulated explicit tracking error constraints for LDI mandates. In our view, setting tracking error targets makes sense for pension plans that have substantially reduced plan risk, or the mismatch of assets and liabilities, also referred to as funded status volatility. In addition to tracking error targets, plan sponsors will benefit from also paying close attention to investment guidelines such as credit quality.
INVESTMENT INSIGHTS | September 2013
As plan sponsors gain experience with liability driven investing and approach a higher funded status, many are focused on designing and implementing LDI mandates with greater risk control. The imposition of tracking error targets on these strategies has been an important step in this direction. Tracking error constraints allow plan sponsors to gain visibility and better control over the discrete sources of risk and excess return in actively-managed LDI mandates.
INVESTMENT INSIGHTS | September 2012
Figure 1: Between 2004 and 2007, the 10-Year Treasury Yield Rose and the 25-Year Moving Average Fell
New federal pension rules that raise the discount rate applied to liabilities for contribution purposes have opened the debate on whether plan sponsors should delay implementation of asset-liability matching long-duration strategies. The new rules, which were included in the transportation bill that President Obama signed in July, may provide relief from the impact of the currently very low interest rates used to calculate liabilities for the purposes of determining minimum contributions under ERISA. Plan sponsors may be tempted to use this relief to reduce contributions and/or shorten duration in anticipation of higher interest rates. However, we believe that plan sponsors should think carefully before doing so, as relief from the law likely will be temporary and higher interest rates don’t necessarily undermine the long-term case for owning long-duration assets.
INVESTMENT INSIGHTS | October 2011
Bond Management Can Add Value
Implementing an effective long duration strategy has gained greater urgency for corporations as they begin to comply with the Pension Protection Act (PPA). The legislation, enacted in 2006, sets minimum funding standards for corporate defined benefit pension plans in the U.S.
Capital Group has managed a government/credit-plus long duration strategy for more than a decade. We recently introduced a new long duration strategy focused on credit partly to meet the need of clients who need a tighter match between assets and liabilities. The existing long duration government/credit strategy is wider in scope, investing in corporate bonds and government securities for greater flexibility, but with a looser match to liabilities. Both the credit and government/credit long duration strategies are also offered in “plus” variations, expanding the universe of investments to include global high-yield bonds. Capital’s long duration strategies focus primarily on cash fixed-income securities, using interest rate derivatives sparingly and primarily for yield curve management and duration positioning.
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses or the collective investment trust's Characteristics statement, which can be obtained from a financial professional, Capital or your relationship manager, and should be read carefully before investing.
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Content contained herein is not intended to serve as impartial investment or fiduciary advice. The content has been developed by Capital Group, which receives fees for managing, distributing and/or servicing its investments.
Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.
Past results are not predictive of results in future periods.