September 2020: U.S. Monthly Pension Monitor

Funded status falls 0.5% as pension assets decline

Despite an increase in liability discount rates, negative asset returns drive funded status lower

  • Average funded status was down by 0.5% over the month: Assets returned -0.7%, while liabilities decreased by 0.2%.
  • S&P 500: The S&P 500 posted a -3.9% loss in September after a 7.0% gain in August. Year-to-date the index remains positive at +4.1%.
Market Watch Dec 2018 Dec 2019 Aug 2020 Sept 2020
Funded status 87% 90% 85% 85%
CITI discount rate1 4.05% 3.01% 2.32% 2.32%
Long Credit yield1 4.89% 3.63% 3.01% 3.05%
U.S. 30Y TSY yield 3.02% 2.38% 1.47% 1.46%
S&P 500 2,507 3,231 3,500 3,363
  • The yield on the Bloomberg Barclays Long Credit Index rose by 5 basis points (bps): Interest rates held steady for the month while credit spreads (OAS) widened by 5 bps.
  • Within broader Investment Grade (IG) credit, spreads inched wider: IG credit spreads finishing the month at 128 bps, a 6 bps widening month over month.²
  • Another strong month of IG Corporate Issuance: U.S. IG corporate issuance was $167BN in September, with year-to-date issuance now exceeding $1.6T.

Long credit spreads vs. long Treasury yields

Long credit spreads vs. long Treasury yields Chart

Spotlight: Record corporate bond issuance has had little impact on returns

  • In 2020, despite the equity market sell-off earlier in the year, the investment grade new issue market hit record levels with three months still to go.
    • Investment grade new issuance was $1.6TN as of 09/30, far surpassing the 2019 annual figure of $1.1TN. Total issuance at the same time last year was only $939BN.
    • Similarly, the high yield market saw $325BN of new issuance YTD, far surpassing the Q1-Q3 total of $206BN last year, and is on pace to break the $332BN mark from 2013.
    • Banks, autos, energy and healthcare/pharma have seen the greatest relative increase in issuance activity while retail was the only notable sector to retreat from the market.
  • The frantic issuance activity reflected corporate borrowers taking advantage of the opportunity to increase liquidity, as they braced for an uncertain economic outlook.
    • In addition, direct bond purchases by the Federal Reserve provided additional liquidity for borrowers in the market and acted as a backstop to further spread widening.
  • Despite heavy issuance and the additional leverage it brings, performance in corporate bond markets has been strong year-to-date. However, active management has been even more crucial in navigating pockets of the market such as energy and airlines that have lagged in performance, being down 1.8% and 7.3% respectively.

Milliman Pension Funding Index

Milliman Pension Funding Index Chart

1The CITI discount rate corresponds to the FTSE short pension liability index. The Long Credit yield corresponds to the Bloomberg Barclays Long Credit Index.
2Data from reference Bloomberg Barclays Indices.

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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.

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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.