Financial Markets: What Is Happening? (March 6, 2020)

Investors have continued to sell global equities and other risk assets like high yield bonds and corporate debt, as continued economic impact from the COVID-19 virus becomes apparent. The U.S. equity market has continued to be very volatile, with big swings this week. The clear implication is that global growth will come down, as concern about China and neighboring countries has now migrated to our shores.

Bond investors continued to be positively rewarded during this time period, benefitting from central bank polices to lower interest rates around the world. The U.S. Federal Reserve (Fed) once again lowered rates after doing so three times in 2019, responding to changes in market rates and attempting to provide support to the economy.

How are the Pension Boards funds positioned?
The Bond Fund and balanced funds, including the Pension Boards’ Target Annuitization (TAD) Funds and the Balanced Fund, own ample bond (fixed income) securities to benefit from lower interest rates and price appreciation in those markets. In particular, the core-fixed income manager in the Bond Fund has benefitted recently from lower rates. The Global Sustainability Index Fund (GSIF) has little to no exposure to emerging markets or China, although those markets have now begun to hold up a bit better. The Equity Fund has some cash buffer and diversifying securities, such as hedge funds, to cushion the blow of a selloff.What are we doing?
What are we doing?
What we said at the outset of this period was that U.S. Treasury securities and other safe-haven assets could continue their rally for the near term, and that has happened even beyond our expectations. These fears may keep the upper hand for risk assets such as equities until we get better news on the virus. That said, we are selectively buying with cash raised in February. If there is a greater selloff than we now anticipate, our stance would continue to be to add to equities, especially in balanced funds, for your long-term benefit.
What should you do?
As a retirement investor, you should focus, always, on the appropriate asset allocation, or mix among stocks, bonds, and cash. The easiest way to do that is to invest in the Target Annuitization (TAD) Fund nearest to your retirement date. Again, these funds become more conservative as retirement approaches, by owning less equities and more fixed income. A focus on proper asset allocation will continue to help you to make better decisions during periods like this, for your retirement benefit.