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LCP Investment Summary - October 2018

Posted on 1 November, 2018 by Administrator

LCP Investment Summary - October 2018

Global equity markets fell sharply, down 5.1% (in € terms), during October in what was a scary month for investors, a real nightmare on Wall Street.

Markets in the U.S. again hit market highs early in the month but investor sentiment turned quickly as U.S government 10 year bond yields hit a seven year high on the back of strong payroll and employment reports. Investors, who had been previously reassured by the strength of the U.S. economy, now became concerned about the possibility of even higher interest rates which would mean rising borrowing costs for both companies and individuals.  

These higher bonds yields also made equities look expensive and less attractive when compared to less risky government bonds. Other issues like the global trade war, slowing global economic growth and various political problems (Italy, Brexit, Saudi Arabia etc) all added to investor concerns as the month progressed despite the release of generally positive Q3 corporate earnings.

Bonds

Longer-dated Eurozone bond prices rose 1.1% in October, with the yield on the AAA Eurozone 15+ Year Index falling to 0.89% by month-end. The Euro Broad Sovereign 10+ Year Index fell by 0.3% with its yield rising to 1.80%.

AAA-rated eurozone bond yields rose during the first week of October, following the lead of government yields in the U.S. They then fell back over the rest of the month as some investors looked for a ‘safe haven’ with equity markets so volatile, and also following the release of softer eurozone data as global trade tensions and worries over Italy overshadowed the economy.

Sample DB Scheme 

The funding level of our sample DB scheme fell to 96.2%, as its assets fell and its liabilities rose (calculated using a MFS proxy) over the month.

Sample DC Schemes

Only the Pension Purchase Strategy rose over October as a result of its exposure to longer-dated AAA-rated eurozone government bonds.  

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