Markets: May 2020 Commentary

Financial markets continued to move in a positive direction in May after a solid rebound in April, with the Standard & Poor’s (S&P) 500 index rising an additional 4.76%.

Various fiscal programs so far this year including The CARES Act, Exchange Stabilization Fund, Paycheck Protection Program Liquidity Facility (PPPLF), and several other Federal Reserve (Fed) programs like the Main Street Lending Program and Municipal Liquidity Facility have been the major factors in the market rebound since the lows on March 23.

Investors continue to be concerned about the human toll and economic impact of COVID-19, which has impacted well over 6.5 million people and has claimed well over 380,000 lives globally. U.S. states are reopening, and activities are slowly resuming, giving investors near-term optimism about a faster market recovery. The market rebound stands in stark contrast to the legitimate and resurgent demands for racial justice.

How have the Pension Boards funds performed?

The Stable Value Fund has been the bedrock retirement investment it is designed to be, with positive performance of 0.64% year-to-date (YTD), backed by insurance guarantees by providers such as Prudential. However, the long-term return potential is lower for this fund than others.
The Bond Fund has performed well so far this year, with performance YTD of 4.39%. The recent risk-on environment has benefited our diversifying exposures in high yield, bank loans, and emerging market debt. In addition, adept interest rate and risk management in the largest portion of the portfolio (core U.S. fixed income, consisting of mainly U.S. government, and green and other corporate bonds) has continued to perform well.
The Balanced Fund and Target Annuitization Date (TAD) Funds, which have allocations to the Bond Fund as well as to equities (and in a few of the TAD funds, to Stable Value), have held up well in the month of May, with performance ranging from -7.16% to 1.08% YTD for the TADs. The Balanced Fund is now negative by only -3.89% YTD, showing the benefits of diversified retirement portfolios. A lower-than-normal allocation to equities at the start of the year, coupled with market declines, provided a better opportunity to re-enter the market. The Balanced Fund is now slightly overweight to its equity target percentage of 55% at the end of May.
The Equity Fund continued to recover positively in May, with a performance of 4.65% MTD. The return through May is -10.56% YTD versus the MSCI ACWI (All-Country World Index) return of -9.16% YTD. The Fund has benefited from active portfolio management, especially by managers in international equities such as Acadian and Walter Scott, and William Blair, in small cap and emerging markets.
The Global Sustainability Index Fund (GSIF) was the best performing fund in May, returning 5.27% MTD and now has a return of -6.90% YTD. A focus on sustainable business practices and lower exposure to fossil fuels than market benchmarks has been a benefit.
The Basic Annuity essentially has been protected from interest rate declines since 2016, with the addition of sophisticated risk and monitoring tools and the hiring of a top-flight manager, Voya. As a result, the funded status (our assets to the present future value of all our promises to annuitants) is still high and stable.
In the Participating Annuity, the funded status (again, our assets compared to our future promises to our annuitants) has declined with the market in 2020, but we have newly-approved tools in place to be opportunistic in this environment. While equity assets declined in price early in the year, prices have rebounded, and the bond portion of the portfolio has held up better. Determination of any changes in 2021 monthly annuity payments will not be made until November 2020, giving the markets time to recover.

What is our investment process at the Pension Boards?

We continue to work diligently on your behalf. Our nine-person internal investment team has experience through many prior market downturns, and is working with our investment consultant through daily updates, and with external investment managers to protect your assets and provide potential upside when opportunities arise.

What should you do?

As a retirement investor, you should focus, always, on the appropriate asset allocation, or mix among stocks, bonds, and cash/stable value investments, and your long-term retirement objectives. It is rarely wise to react to shorter-term market movements. The easiest way to avoid that is to invest in the Target Annuitization (TAD) Fund nearest to your retirement date. Again, these funds are more aggressive early in your career, and become more conservative as retirement approaches, by owning less equities and more bonds and stable value investments.

Our capable and responsive Member Services staff is available to you. Please contact the Pension Boards at 1.800.642.6543 with questions about fund information, performance, strategy, and approach.

If you have questions about your unique financial situation, please contact an Ernst & Young financial planner, available at no cost to you through our partnership with EY. Visit the EY Navigate™ website ( or call the EY Navigate™ Financial Planner Line at 1.877.927.1047, Monday through Friday from 9:00 a.m. to 8:00 p.m. (ET).

We will get through this together and will do it well, thoughtfully, and with the deepest care for you, our members.