October 2021: U.S. Monthly Pension Monitor

Strong investment performance pushes funded status near 100%

October Market Summary

  • Average funded status increased by 2.6% to 99.9%: Assets returned 4.4% while a drop in discount rates increased liabilities by 1.6%. ¹
  • U.S. equity markets rebounded in October: The S&P 500 rallied 6.9% during the month and is now up 22.6% since the start of the calendar year.
  • The yield on the Bloomberg Barclays Long Credit Index decreased 7 basis points (bps): Long credit spreads widened 1 bps while the underlying Treasury basis decreased 8 bps. ¹
Market Watch Dec 2019 Dec 2020 Sept 2021 Oct 2021

Funded status

90%

90%

97%

100%

CITI discount rate²

3.01%

2.23%

2.63%

2.53%

Long Credit yield²

3.63%

2.78%

3.06%

3.06%

U.S. 30Y TSY yield

2.39%

1.64%

2.04%

1.93%

S&P 500

3,231

3,756

4,308

4,605

Spotlight: Global rates markets remain uncertain as investors await central bank actions

  • Over the last month, global short term rates markets began to show some volatility as investors debated central bank policies and inflation.
    • In the U.S., the yield curve flattened dramatically as the 2s30s spread narrowed by 33 bps - The 2-year Treasury rose by more than 20 bps for the first time since 2018 while the 30-year Treasury fell by 11 bps.
    • In Australia, 2-year rates moved from 12 to 78 bps in just 5 days as the Reserve Bank of Australia gave-up on its previously announced yield curve control policy.
  • At the latest Fed meeting, chairman Jerome Powell announced that the Fed will begin tapering, e.g. decreasing its bond purchases, by $15 BN per month starting in late November.
  • Global supply chains remain challenged, as shipping costs for a standard 40ft container from Shanghai to LA have increased from roughly $4k a year ago to $11k today.
    • The port of LA is experiencing severe operational challenges, where on any day approximately 100 ships await to be docked and unloaded
  • Energy prices continue to rise, WTI increased from $36 to $84 dollars per barrel year-over-year, while natural gas prices spiked across Europe as Russia squeezed supplies.
    • The credit outlook for the energy sector improved, spreads have tightened 30 bps since the start of the year, largely due to higher prices combined with a new found financial discipline. For comparison, the broad US Corporate index has tightened 9 bps year-to-date.
  • In our long credit portfolios we have been positioning for this challenging environment by focusing on staying up in quality. We remain underweight BBB’s and favor financial and utility sectors over higher beta industrials.
    • Additionally, we don’t see an obvious catalyst for spreads to go tighter and continue to hold a ~4% sleeve in Treasuries as dry powder in the event that credit spreads widen.

Milliman Pension Funding Index (October Estimate)

¹ Funded Status for the month of October is estimated and subject to change as final numbers are released. Data from reference Bloomberg Indices.

² The CITI discount rate is estimated for the month of October based on the change in the Bloomberg Long AA corporate Index. The Long Credit yield corresponds to the Bloomberg Long Credit Index.

About SLC Management

SLC Management is the brand name for the institutional asset management business of Sun Life Financial Inc. (“Sun Life”) under which Sun Life Capital Management (U.S.) LLC in the United States, and Sun Life Capital Management (Canada) Inc. in Canada operate.

Sun Life Capital Management (Canada) Inc. is a Canadian registered portfolio manager, investment fund manager, exempt market dealer and in Ontario, a commodity trading manager. Sun Life Capital Management (U.S.) LLC is registered with the U.S. Securities and Exchange Commission as an investment adviser and is also a Commodity Trading Advisor and Commodity Pool Operator registered with the Commodity Futures Trading Commission under the Commodity Exchange Act and Members of the National Futures Association.

BentallGreenOak, InfraRed Capital Partners (InfraRed), Crescent Capital Group (Crescent), and Advisors Asset Management are also part of SLC Management.

BentallGreenOak is a global real estate investment management advisor and a provider of real estate services. In the U.S., real estate mandates are offered by BentallGreenOak (U.S.) Limited Partnership, who is registered with the SEC as an investment adviser, or Sun Life Institutional Distributors (U.S.) LLC, an SEC registered broker-dealer and a member of the Financial Industry Regulatory Authority (“FINRA”) . In Canada, real estate mandates are offered by BentallGreenOak (Canada) Limited Partnership, BGO Capital (Canada) Inc. or Sun Life Capital Management (Canada) Inc. BGO Capital (Canada) Inc. is a Canadian registered portfolio manager and exempt market dealer and is registered as an investment fund manager in British Columbia, Ontario and Quebec.

InfraRed Capital Partners is an international investment manager focused on infrastructure. Operating worldwide, InfraRed manages equity capital in multiple private and listed funds, primarily for institutional investors across the globe. InfraRed Capital Partners Ltd. is authorized and regulated in the UK by the Financial Conduct Authority.

Crescent Capital Group is a global alternative credit investment asset manager registered with the U.S. Securities and Exchange Commission as an investment adviser. Crescent provides private credit financing (including senior, unitranche and junior debt) to middle-market companies in the U.S. and Europe, and invests in high-yield bonds and broadly syndicated loans.

Securities will only be offered and sold in compliance with applicable securities laws.

AAM is an independent U.S. retail distribution firm that provides a range of solutions and products to financial advisors at wirehouses, registered investment advisors and independent broker-dealers.

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The information contained in this website is not intended to provide specific financial, tax, investment, insurance, legal or accounting advice and should not be relied upon and does not constitute a specific offer to buy and/or sell securities, insurance or investment services. Investors should consult with their professional advisors before acting upon any information contained on this website. The assets under management (AUM) represent the combined AUM of Sun Life Capital Management (Canada) Inc., Sun Life Capital Management (U.S) LLC, BentallGreenOak, Crescent Capital Group, InfraRed Capital Partners, and Advisors Asset Management.

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UK Tax Strategy - InfraRed (UK) Holdco 2020 Limited

InfraRed (UK) Holdco 2020 Ltd is the UK holding company of InfraRed Partners LLP and a subsidiary of Sun Life (U.S.) Holdco 2020 Inc, which has its headquarters in the U.S. The company was incorporated to purchase InfraRed Partners LLP and acts solely as a passive holding company. The Tax Strategy for the InfraRed Holdco Group sets out our approach to the management of InfraRed Holdco Group UK tax affairs in supporting business activities in the UK. 

This UK tax strategy is published in accordance with the requirements set out in Schedule 19 of Finance Act 2016. The strategy, which has been approved by the Board of Directors of InfraRed (UK) Holdco 2020 Ltd, is effective for the period ending 31 December 2024. It applies to InfraRed (UK) Holdco 2020 Ltd and its dormant subsidiary Sun Life (UK) Designated Member Ltd, referred to as the “InfraRed Holdco Group”. InfraRed Holdco Group.