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LCP Investment Summary - February 2018
Posted on 1 March, 2018 by Administrator
Global equities fell 2.0% (in € terms) during February in what was a return to volatility not seen by markets since 2016.
Eurozone equities fell 3.8%, with markets initially falling sharply in early February after a better-than-expected U.S. jobs report increased investor fears about rising inflation which may lead to more interest rate rises than previously expected. Market assumptions about interest rate rises have consistently trailed the Feds market guidance and this was the shock that closed that gap. The resulting rising bond yields also saw some investors switching from equities to bonds. Markets recovered for the rest of the month with investors encouraged by the continuing strength of the global economy and corporate earnings, but fell again at month-end when the US Federal Reserve hinted that it may increase interest rates four times in 2018 instead of the previously expected three rises.
North American equities fell 3.6% in $ terms (-1.8% in € terms) in February, with markets falling over 10% from their record high set in the last week of January to the 8th February low. Share prices then recovered with investors taking comfort from the fact that that higher inflation, interest rates and bond yields are as a result of continuing expectations of strong U.S. economic growth.
Longer-dated eurozone bond prices fell marginally in February, with the yield on the AAA Eurozone 15+ Year Index rising to 1.18% by month end. The Euro Broad Sovereign 10+ Year Index rose 0.3% with its yield at 1.73%.
Yields remain near recent lows as inflation in the region slowed to 1.2% in February, making it less likely that the ECB will start to reduce its monetary stimulus and move towards raising interest rates in the near future.
Sample DB Scheme
The funding level of our sample DB scheme fell to 97.1%, as its assets fell and its liabilities (calculated using a MFS proxy) rose over the month.
Sample DC Schemes
Our High and Medium Risk Strategies fell in February as equities and other growth assets classes were down over the month.
Market Performance to 28th February 2018