We've all been through big changes in the last few months and although some of the headline numbers have been very worrying, the full impact of the global pandemic is still, to a large degree, unclear.
As a market comment, and it's worth noting these figures date, not by the week or even day, but by the hour highlighting the true roller-coaster investors are on.
Equities were down 20% on the year (30% from last year's peak), but up 20% since mid-March.
UK yields were down, with the UK government issuing its first ever negative yielding bond - where investors find themselves in the unusual situation of being paid back less than they loaned to the government.
Corporate bond spreads are a long way up on last year. With US high yield (riskier companies) were offering spreads (returns) of over ten per cent (before diving back down 3% plus).
A true roller-coaster.
Pension scheme performance
What becomes obvious in this fluid landscape is the need for a robust portfolio - the bad news is that robustness isn't a mid-crisis action. You've either done it good weather, or you haven't.
When we look at the performance of pension schemes since the beginning of this year, at the height of the crisis, we've seen those that hadn't taken simple robustness actions funding level fall by around 15%, and some of them by even as much as 20%. Those who had undertaken some action could easily cut that fall in half or better.
So, having a robust portfolio is important and, a lot of the time involves going back to basics. This means hedging your liabilities interest rates and inflation sensitivities, and ensuring true diversification of investments to protect the value of growth assets.
As for the potential recovery scenarios our central position is a ‘U'-shaped recovery where it will take 12 months to three years for things to revert to normality.
Whilst this is Kempen's central outlook, other recovery scenarios are possible such as a ‘V'-shape (where the economy bounces straight back) or the ‘W'-shape, double dip recession. Indeed there are also some worse outcomes - the slow Nike tick recovery or the depressionary "\".
It's an uncertain world, so when setting your portfolio you have to make sure that it's robust as possible in any scenario.
However, there's a bigger risk - while the world is focused on Covid-19 in the very short term, it's important to realise there are other things happening that could have a significant long-term economic impact. These things also need to be considered when thinking about portfolio robustness.
The US elections and Trump's noisy trade war with China - which he is conducting with half an eye on November's Presidential election. It's a real risk to global trade and growth and, almost semi-forgotten mid-COVID crisis (might we just bounce from one crisis to another)?
From a UK perspective, Brexit has, strangely become almost completely overshadowed by pandemic concerns, but it is one that is likely to have far-reaching economic repercussions, particularly for UK schemes.
The pandemic has also had an impact on the way trustees and advisers are communicating. Remote working presents its own challenges, and here at Kempen we're focused on giving clear advice and holding concise meetings. This all needs to take place within the boundaries of a well-constructed governance framework.
For us it's all about having open and honest conversations about the situation the client is in, and what it means for their pension scheme.
When I look at how our [Kempen] clients have performed; I'm pleased to say the impact has been fairly limited. There has obviously been some effect, in a scenario where the world economy virtually shuts down it's impossible to avoid some impact.
All clients have different views on risk and it's important to match strategies to their individual circumstances. But above all else it's important not to be distracted by short term fluctuations and focus on long-term outcomes.
So, if you're going to build a robust portfolio it needs to be robust over your journey plan, over your investment horizon, not somebody else's.
If I had one message above all others then it would be this. In the middle of a crisis, be sure in what you do. Take it back to basics and focus on good governance and clear decision making.
And on top of that, maybe the message should be to ask a bit more of your fiduciary manager. If they don't seem to be explaining what is happening and why then ask them. They should be able to tell you.
Watch Kempen's June Market Update Below