Global equity markets rallied in the first quarter despite volatility created by U.S. regional bank and European bank failures. The bank stresses, contained for now by the fast government interventions, will likely affect the Federal Reserve (Fed)’s monetary policy going forward.
There were strong gains in international developed markets followed by U.S. markets.
Larger company stocks within the U.S. continued to lead, and there was a short-term shift back to growth-oriented stocks. Large-cap stocks (S&P 500 Index) were up +7.50% in the quarter, and small-cap stocks (Russell 2000 Index) were up +2.74%. International developed stocks (MSCI EAFE Index) were up the most at +8.47% for the quarter, and emerging market equities (MSCI EM Index) were up +3.96% for the quarter.
Fixed-income markets were also positive during the quarter, led by local currency emerging market debt and high-yield bonds. The U.S. 10-year Treasury yield fluctuated during the quarter but ended at 3.48%. First-quarter performance for the Barclays Government Credit Index, a proxy for the broad U.S. fixed-income market, was up +3.17% in the quarter; bank loans were up +3.05% in the quarter; high-yield bonds were up +3.57% in the quarter; and emerging market debt was up +2.25%.
The Stable Value Fund continues to be a positive performer, with returns up +0.53% for the quarter.
The Bond Fund was up +2.87% for the quarter, as interest rates came down somewhat.
The Sustainable Balanced Fund, which has allocations to both sustainability-focused equity and fixed-income managers, was up +6.01% for the quarter. Underlying managers specialize in Environment, Social, and Governance (ESG) leaders.
The Target Annuitization Date (TAD) Funds, which have allocations to the Bond Fund as well as to the Equity Fund (and in a few of the TAD Funds, the Stable Value Fund), had performance between +3.00% and +5.72% for the quarter.
The Equity Fund was up +6.25% for the quarter. Growth-oriented stocks returned to lead the market relative to value-oriented stocks.
The Global Sustainability Index Fund (GSIF) was very strong, with a return of +8.14% for the quarter.
The Basic Annuity essentially has been protected from interest rate volatilities since 2016, with the addition of sophisticated risk and monitoring tools and the hiring of a completion manager, Voya. As a result, the funded status (our assets to the present future value of all our promises to annuitants) is still healthy and stable.
In the Participating Annuity, the funded status (our assets compared to our future promises to our annuitants) has remained steady.
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. As of January 1, 2021, there are now two new TAD Funds (2045 and 2050) available. Again, these funds are more focused on growth early in your career, and become more conservative as retirement approaches, by owning fewer equities and more bonds and stable value investments.
Our capable and responsive Member Services staff is available to assist 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).