30 April, 2020

What’s happening?


  • Global economic data continues to disappoint
  • Major indices rebound strongly
  • Markets confident normality will return – but when?


Focus on investment governance


  • How volatility hits already complex portfolios
  • How to keep looking forward
  • How Mercer can be there when you cannot


What’s next?


  • Expect more poor economic data
  • Caution prevails over potential second wave
  • Questions over long-term position of Italy within the Eurozone


What’s happening?


Global economic data continues to disappoint and sometimes shock – US new jobs claims added 3.8 million by the last week of April taking total since the pandemic to more than 30 million [1] – but there are some bright spots to note[2]:


  • US equities have rebounded around 50% from the initial market collapse
  • UK equities have also rebounded, but less than the US due to different market make up
  • Gilts have rebounded from lows
  • Sterling rebounded against the US dollar from 40-year lows

We believe markets are getting used to the current situation and pricing in a recovery – although no one is committing to when that might be.


Focus on investment governance


Market stress exposes gaps in governance as trustees – many of whom are company employees – face competing pressures for their time.


While some institutional investors have well-resourced in-house investment teams, just needing Mercer to help research, analyse and implement ideas, most of our clients have limited time, which is only compounded in periods of crisis.


We find that it is clients who ask us to carry out multiple tasks – such as assessing liabilities, formulate strategies and find investment managers – who are often unable to react quickly in situations that might require it.


This is why we created our Investment Solutions governance framework.


Many of our clients have found that a certain degree of delegation allows them to rely on us to analyse and react when they are unavailable to do so – especially in times of high volatility.


It can mean we move to protect client assets or reach towards opportunities, using our own well-resourced investment and trading teams, while keeping in line with the objectives we have already clarified together.


Even in times of relative calm, delegating the implementation of an agreed approach, such as a liability-driven investment strategy, can enable us to get a client’s portfolio working more quickly and efficiently.


By relying on Mercer’s internal expertise and operations, our clients know we can be there when they need us, which is often exactly when they cannot.


What’s next?


Economic data continues to be terrible, with some indicators reaching – or beating – those last recorded in wartime.


Markets are cautious about a potential second wave of the Covid-19 outbreak, despite some positive news about vaccines and testing.


There is rising concern about Italy’s position within the Eurozone, as its leaders question support from the bloc’s other nations. One to watch in the next few weeks and months.


We remain cautious on equities.


[1] https://www.dol.gov/ui/data.pdf

[2] Bloomberg, 28 April 2020

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