IF YOU ONLY HAD ONE SHOT…

“Look, if you had one shot, or one opportunity to seize everything you ever wanted, in one moment…
Would you capture it or just let it slip?”

 

As I wrote in a recent blog, investment markets have been friendly lately, providing some pension schemes with an opportunity to de-risk at improved levels.  This week has seen a turnaround in market sentiment, with scares in the Spanish and Italian government bond markets, softer US data and disappointing Chinese growth numbers sending Gilt yields and equity indices lower.


The chart above shows the movement of 30 year Gilt yields and FTSE 100 for the last month.  Gilts have seen a range of 28bp from high to low while the FTSE has a range of 6.2%. Fortunately, pension schemes may have more than ‘one shot, or one opportunity’ to de-risk but it requires trustee boards to have the ability to ACT

Why is it important to ACT?

The latest PPF 7800 figures showed an improvement in funding levels during March, helped by higher gilt yields and equities.  However, the latest markets movements suggest a deterioration in funding levels for April, if the trend continues. As a rule of thumb, PPF estimate that a 7.5% rise in equities leads to a 4% rise in asset values, while a 30bp rise in gilt yields reduces liabilities by 5%. Unfortunately, we have seen both equities and yields fall this month.

Schemes with an appropriate decision-making process have been able to ‘lock-in’ some of the gains by de-risking as sentiment improved. According to a survey by Schroders, these schemes make up the minority with just 17% of those surveyed able to make immediate investment decisions. In contrast, over 50% of respondents said it takes longer than one month for trustee boards to decide.

Eminem only had one shot. If your scheme has a second shot, would you capture it or just let it slip?

 

[Please note that all opinions expressed in this blog are the author’s own and do not constitute investment advice.  Click here for full disclaimer]

 

Author: Robert Gardner

Robert is Co-Founder and Non Executive Director at Redington Ltd. He started his career at Deutsche Bank before joining Merrill Lynch in 2003, working as Director in their Insurance and Pensions Solutions Group. In 2008, Robert also co-founded Mallowstreet, the online pensions community which continues to grow with presence and support from the industry. Robert is passionate about the impact of social media on business believing that education, collaboration and contributions are the best way to tackle pension challenges. In January 2019, Robert joined St. James's Place Wealth Management as Director of Investments.