Article May 7, 2021

US pension briefing – April 2021

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Key takeaways

  • Pension discount rates retraced some of the increase we’ve seen so far this year but are still up approximately 0.6% so far in 2021. Liabilities generally increased during the month.
  • Equity market returns continued to increase as the global economy continued to improve and generally outperformed liabilities.
  • As a result, most pension plans will see very little change or a slight improvement in funded status in April. Those with higher equity allocations and less interest rate hedging will see the largest improvements.

 

April 2021 summary

Pension discount rates retraced some of the increase we’ve seen over the last five months and were down about 0.1%, which means liabilities generally increased about 1.0% - 1.5% for a typical pension plan. The FTSE pension discount rate is still up year-to-date and right at pre-pandemic levels.

Equity returns for April were largely positive, but the rotation to cyclical stocks we saw earlier in the year took a pause this month. Large cap and growth-oriented equities lead the way. The general increase in equities this month was driven by continued positive COVID-19 vaccine news, further re-opening plans, and expectations of additional fiscal stimulus and an infrastructure bill in the US. International equity also gained on similar re-opening and stimulus news.

Overall, most pension plans should see their funded status slightly improve for the month, particularly those with higher equity allocations as equities generally outperformed liabilities.

 

Discount rates & asset returns

FTSE Pension Discount Rate Index - April 2021

After increasing since November 2020, discount rates dropped for the first time in 2021, decreasing by 0.13% in April. This was due to a decline in Treasury yields during the month as credit spreads maintained steady during the month. However, current discount rates are still up over 0.50% since the end of 2020 and are up around 0.30% from this time last year. The FTSE pension discount index finished April at 3.09%.

 

April returns (%)

The global economy continued to improve and equity markets had another strong month, where US equities took the lead on expectations for further fiscal stimulus and the Fed holding steady on interest rates. On the fixed income side, the yield curve flattened and credit spreads tightened for most higher-yielding securities. The dollar retreated along with declining Treasury yields and gold appreciated as inflation trended higher.

 

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SECURITY INDICES: This presentation includes data related to the performance of various securities indices.  The performance of securities indices is not subject to fees and expenses associated.  Investments cannot be made directly in the indices.   The information provided herein has been obtained from sources which River and Mercantile LLC believes to be reasonably reliable but cannot guarantee its accuracy or completeness.
CONFIDENTIAL:  For addressee use only, not to be disclosed to any other person without express consent from River and Mercantile LLC.  Past performance cannot be relied upon to predict future results.  River and Mercantile LLC is an investment advisor registered with the US Securities and Exchange Commission.

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