David A. Klassen, Chief Investment Officer

Global financial markets were very strong, ending what turned out to be a very positive year for returns. The economy has rebounded strongly from its low, although the speed of recovery going forward will be predicated on the virus, vaccine deployment, and further policy supports. A positive response to the U.S. election continues but increases in COVID virus rates in the winter will likely continue to hurt affected industries such as hospitality.

The unprecedented fiscal and monetary stimulus packages around the globe have kept markets elevated. The Standard & Poor's large-cap index of 500 stocks (S&P 500) returned 12.15% in the quarter and 18.40% year-to-date (YTD), and small-cap stocks (Russell 2000 Index) were up 31.37% in the quarter and 19.96% YTD. International developed stocks (MSCI EAFE) were up 16.05% for the quarter and 7.82% YTD, and emerging market equities (MSCI EM) were up 19.70% for the quarter and 18.31% YTD.  Fixed-income returns also continued to be positive, led by riskier credit strategies, particularly in emerging markets.

The Equity and Balanced Funds performed well for the last three months of the year and for all of 2020, especially relative to peer funds available in the marketplace.

How have the Pension Boards funds performed?

The Stable Value Fund has been the bedrock retirement investment it is designed to be, with slightly positive performance of 0.43% for the quarter and 1.68% year-to-date (YTD), backed by insurance guarantees by providers such as Prudential. However, the long-term return potential is lower for this fund than others.

The Bond Fund has continued to have positive returns in the quarter of 1.82% and was up 8.69% for 2020, benefitting from solid asset allocation and security selection. As the market returned to a risk-on posture, diversifying exposures to emerging market debt and high yield bonds propelled the fund further.

The Balanced Fund and Target Annuitization Date (TAD) Funds, which have allocations to the Bond Fund as well as to the Equity Fund (and in a few of the TAD funds, to the Stable Value Fund), continued to perform positively, with performance of 6.12% to 11.87% quarter-to-date (QTD) and 9.17% to 12.47% for all of 2020 for the TADs, and 9.77% QTD and 12.74% YTD for the Balanced Fund, showing the benefits of diversified retirement portfolios. Allocations to equities increased in the quarter due to strong market advances, making the Balanced Fund equity allocation close to 60%.

The Equity Fund had a very strong quarter, up 16.13%, well above the policy benchmark, benefiting from strong outperformance by large cap and value managers. The fund was up 15.05% in 2020.

The Global Sustainability Index Fund (GSIF) was also positive for the quarter with a return of 12.65%, as equities in the U.S. were very strong. The fund was up 14.83% for the year.  A focus on sustainable business practices and lower exposure to fossil fuels than market benchmarks continue to be a benefit.

The Basic Annuity essentially has been protected from interest rate declines since 2016, with the addition of sophisticated risk and monitoring tools and the hiring of a new manager, Voya.  As a result, the funded status (our assets to the present future value of all our promises to annuitants) is still high and stable.

In the Participating Annuity, the funded status (our assets compared to our future promises to our annuitants) has improved since the end of September with the market and we have newly approved tools in place to manage the impact of lower interest rates on the Fund. Given that the Fund’s funded status was healthy and stable, but not excessive, there were no increases or decreases made for 2021.

What should you do?

As a retirement investor, you should focus, always, on the appropriate asset allocation, or mix among stocks, bonds, and cash/stable value investments, and your long-term retirement objectives. It is rarely wise to react to shorter-term market movements. The easiest way to avoid that is to invest in the Target Annuitization Date (TAD) Fund nearest to your retirement date. There are now two new TAD Funds (2045 and 2050) offered as of January 1, 2021. Again, these funds are more focused on growth early in your career, and become more conservative as retirement approaches, by owning less equities and more bonds and stable value investments.

Additionally, be on the lookout for information about the exciting re-launch and conversion of our Balanced Fund into the new Sustainable Balanced Fund, with a new slate of exciting managers.

Our capable and responsive Member Services staff is available to assist you. Please contact the Pension Boards at 1.800.642.6543 with questions about fund information, performance, strategy, and approach.

If you have questions about your unique financial situation, please contact an Ernst & Young financial planner, available at no cost to you through our partnership with EY. Visit the EY Navigate™ website (https://pbucc.eynavigate.com/) or call the EY Navigate™ Financial Planner Line at 1.877.927.1047, Monday through Friday from 9:00 a.m. to 8:00 p.m. (ET).

Thank you for your confidence in the Pension Boards and we look forward to being in communication in 2021!