The impact of COVID-19 continued to dominate global markets in May. Whilst equity markets continued their rebound throughout the month, widening inflation expectations saw a sharp decrease in real yields and therefore a corresponding jump in liability values. As a result, the PPF 7800 Index ended the month down 2.2%, with funding levels at the end of May of at 90.9%.
The month was marked by lower volatility in equity markets, implying that investors are cautiously monitoring the situation. Declining infection rates in many countries also gave a reason for optimism; confidence that we have hit the peak number of cases and a flattening of the new case curve serve as key catalysts for driving a market recovery, alongside a significant policy response globally and liquidity in the financial markets.
Despite this positive market sentiment, pension schemes are still some way off where they ended 2019. This will no doubt have sparked conversations on whether changes need to be made to journey plans and how trustees and sponsors can ensure their schemes’ investment strategies are appropriate. We have seen an increase in the number of schemes considering Fiduciary Management as a new approach, to quickly take advantage of market dislocations, improve risk management and reduce trustees’ governance burden in this rapidly evolving landscape.
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