Global equity markets sold off in the first quarter reflecting concerns for rising inflation and Russia’s invasion of Ukraine. March provided some positive returns except in emerging markets. Although returns were negative in the U.S. in the period, large company U.S. equities were the best performers. Positive sector performance came from energy, utilities, and materials. Fixed income returns were also quite negative as rates increased during the quarter.
The economy accelerated in 2021 due to two engines – the world’s largest economies re-opening and significant government stimulus. Fiscal spending declines and more embedded inflation will be a headwind going forward while wage and employment growth will create demand to keep the economy growing but more slowly. Large-cap stocks (S&P 500 Index) were down 4.60% in the quarter, while small-cap stocks (Russell 2000 Index) were down 7.53%. International developed stocks (MSCI EAFE Index) were down 5.91% for the quarter, and emerging market equities (MSCI EM Index) were down 6.97% for the quarter.
Fixed-income returns were also negative during the quarter, as mentioned. The U.S. 10-year Treasury yield started the quarter at 1.63% and ended at 2.32%. First quarter performance for the Barclays Government Credit Index, a proxy for the broad U.S. fixed-income market, was down 6.33% in the quarter; bank loans were down 0.10% in the quarter; high-yield bonds were down 4.82% in the quarter; and emerging market debt was down 9.26%.
The Stable Value Fund continues to be a solid performer, with slightly positive performance of +0.42% for the quarter. However, the long-term return potential is lower for this fund than others.
The Bond Fund was down 5.19% for the quarter, with mixed underlying asset class performance due to the fluctuations in interest rates. As rates have trended up, diversifying exposures to bank loans and high-yield bonds have been beneficial.
The Sustainable Balanced Fund, which has allocations to both sustainability-focused equity and fixed-income managers, was down 6.08% for the quarter. This relaunched, best-in-class fund, which replaced the Balanced Fund, focuses exclusively on managers that specialize in incorporating Environmental, Social, and Governance (ESG) criteria, which assess the fund’s societal or environmental impact.
The 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 and the Stable Value Fund), had performance between -3.99% and -6.20% for the quarter.
The Equity Fund was down 6.50% for the quarter. U.S. large cap and value-oriented stocks, although negative, were the best relative performers.
The Global Sustainability Index Fund (GSIF) was negative, with a return of -6.49% for the quarter.
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) is healthy and has stayed fairly steady so far in 2022. The fund has also benefitted from adept management of interest rates, with newly approved tools in place since 2020.
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 (TAD) Fund nearest to your retirement date. As of January 1, 2021, there are now two new TAD Funds (2045 and 2050) available. Again, these funds are more focused on growth early in your career, and become more conservative as retirement approaches, by owning fewer equities and more bonds and stable value investments.
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 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).