Global equity markets ended strong but were volatile during the quarter. Both soft business confidence and labor markets, and the unwinding of a Japanese Yen carry trade triggered market declines earlier in the quarter. This then reversed due to stronger U.S. company earnings growth and expectations, declined again on another disappointing labor report, and then ended the quarter up as the Federal Reserve (Fed) cut rates by 50 bps with broad market participation. Markets were led by emerging markets, primarily due to China, followed by International developed markets, and then the U.S. With the exception of energy, all other sectors were positive led by Utilities and Real Estate. In the U.S. markets, large-cap stocks (S&P 500 Index) were up +5.89% in the quarter, while small-cap stocks (Russell 2000 Index) were up +9.27%. International developed stocks (MSCI EAFE Index) were up +7.26% for the quarter, and emerging market equities (MSCI EM Index) were up +8.72% for the quarter, impacted by strong performance of the Chinese market.
Fixed-income returns were also quite strong during the quarter as the Fed cut interest rates. The U.S. 10-year Treasury yield decreased by 55 bps in the quarter to 3.81%. Third quarter performance for the Barclays Government Credit Index, a proxy for the broad U.S. fixed-income market, was up 5.10% in the quarter; high-yield bonds was up +5.28% in the quarter; and emerging market debt (50% JPM EMBI / 50% JPM GBI-EM) was up +7.57%.
The Stable Value Fund continues to be a positive performer, with returns up +0.64% for the quarter.
The Bond Fund was up +5.51% for the quarter, as interest rates declined.
The Sustainable Balanced Fund, which has allocations to both sustainability-focused equity and fixed-income managers, was up +5.41% 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 +2.95% and +6.17% for the quarter.
The Equity Fund was up +6.29% for the quarter. Emerging markets and International Developed stocks led the market.
The Global Sustainability Index Fund (GSIF) was also positive, with a return of +5.12% 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 new manager, Voya. As a result, the funded status (our assets to the present future value of all our promises to annuitants) improved in 2023. There was a 3.5% increase given beginning in 2024.
In the Participating Annuity, the funded status (our assets compared to our future promises to our annuitants) improved in 2023 and again in early 2024. Given the improvement, there was a 5% increase beginning in 2024.
Healthy increases were also instituted for the pre-2007 Equity and Balanced Benefit Annuities based on 2023 performance and that will continue and be implemented on October 1, 2024 as a result of performance for the first six months of 2024.
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 two additional 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.