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Aon Retirement and Investment Blog

Weekly Update - 10 July 2017

NEW INTELLECTUAL CAPITAL

  • Making Portfolios More Fee-Efficient. Investment management fees are highly relevant to portfolio performance. Making portfolios more fee-efficient is not necessarily about reducing fees. Rather, it is about paying for things that add value, and not paying for things that don’t. While efforts often focus on asset allocation and manager selection, it is also important to negotiate aggressively and combine skilled managers in the most fee-efficient way. We describe a toolkit of approaches for making portfolios more fee-efficient.
  • Managing Health Care Reserves: Aligning Operating Assets with Broader Organizational Goals. According to the American College of Healthcare Executives’ 2016 annual survey of top issues confronting hospitals, financial challenges continued to rank as #1. It becomes critical to consider the interlinked effects from changes in investments and in financial metrics within an Enterprise Risk Management (ERM) framework. Find out more about this in our latest paper on aligning operating assets with broader organizational goals.
  • U.S. Sample Annuity Rates. Monthly update for pricing of U.S. annuity purchases as of 30 June 2017.
UPCOMING EVENTS
  • Managing Retirement Programs in the Utility Industry: Trends and Benchmarking. Join our next Retirement & Investment U.S. webinar on July 25th at 12 noon CT. While retirement programs provide critical benefits for employees, they represent substantial cost and risk for plan sponsors. Utility companies employ diverse design, financing, and investment strategies when managing their programs. During this webinar, we’ll take a closer look at these strategies and share benchmarking data and trends in the utility industry.
MARKET MOVES (week ending  July 7, 2017)
Equities

  • US Small Cap stocks performed at par with Large Cap stocks as both the Russell 2000 and S&P 500 rose by 0.1% over the week. On a year to date basis, S&P 500 has outperformed Russell 2000 (9.5% vs. 5.0%). Growth stocks outperformed Value stocks last week (0.2% vs. 0.0%) as measured by MSCI USA indices
  • Global equity returns edged lower in a week in which economic data was mixed, latest meeting minutes from the major central banks revealed a more hawkish stance, and North Korea tested their new missile. The MSCI World Index fell by 0.1% over the week, underperforming S&P 500 which rose 0.1% over the same period. On a year to date basis, MSCI World has outperformed S&P 500 (10.9% vs. 9.5%).
  • On a Year to date basis, Growth stocks have outperformed Value stocks (14.0% vs. 5.5%).
Bonds
  • 10 year US Treasury yields rose by 8bps and 30 year US Treasury yields rose by 9bps, ending the week at 2.39% and 2.93% respectively. Yields rose as minutes from the US Federal Reserve’s meeting in June indicated toward policy makers’ focus on trimming the Fed’s $4.5 trillion balance sheet.
  • 20 year TIPS yield rose by 7bps to 0.75% over the week. 20 year Breakeven rose by 2bps to 1.72%.
  • Barclays Capital Long Credit Index spread over treasury yields fell by 2bps to 155bps over the week. The Merrill Lynch US Corporate Index fell by 3bps to 112bps. The US high yield bond spread over US treasury yields rose by 6bps to 383bps. The spread of USD denominated EM debt over US treasury yields finished the week 6bps higher at 316bps.
Commodities
  • The S&P GSCI fell by 1.8% in USD terms over the week. The energy sector fell by 3.6% as the price of WTI crude oil decreased by 3.8% to $44/BBL. Industrial metals fell by 0.7% as copper prices decreased by 2.1% to $5,804/MT. Agricultural prices rose by 2.9% whilst gold prices fell by 2.7% to $1,210/ounce.
Currencies
  • The US dollar appreciated against major currencies over the week. The US dollar appreciated by 0.8% against sterling, ending the week at $1.29/£. US dollar strengthened by 0.1% against the euro, finishing the week at $1.14/€. The Japanese yen depreciated by 1.4% against the US dollar, ending the week at ¥113.99/$.
Economic Releases
  • The US began last week in positive fashion as the keenly-watched Institute of Supply Management's (ISM) manufacturing index rose sharply to 57.8 from 54.9; the highest level in nearly three years. A milder 0.4 point increase had been forecasted. The strong showing by the manufacturing sector was replicated, albeit to a lesser extent, in other areas of the economy as the ISM Services/Non-Manufacturing Composite index rose to 57.4 from 56.9 and above expectations of a slight dip to 56.5. Labour market data was more mixed; non-farm payrolls outperformed expectations and increased by 222k in June, up from a revised 152k in May and estimates of 178k. Meanwhile, wage growth narrowly missed forecasts as average hourly earnings grew by 2.5% in the year to June, instead of 2.6% estimated.
  • Eurozone releases over the week were largely positive, with a solid set of finalised PMI data for June. The Markit Eurozone PMI releases were largely expected to remain unchanged but both the services and manufacturing PMI's were revised higher to 55.4 (vs. 54.7) and 57.4 (vs. 57.3) respectively. As a result, the Composite PMI rose from 55.7 to 56.3. Markit PMI data for Germany was similarly robust with the final services PMI for June rising to 54.0 from 53.7, whilst the composite PMI increase to 56.4 from 56.1. Retail sales data in May was also encouraging, increasing 0.4% as expected on a monthly basis, and up 2.6% annually (from 2.3% expected and unchanged from the revised reading for April). Industrial production reports were positive in the Euro area; output in Germany surged by 1.2% over May, far exceeding expectations of 0.2%, with data from Spain and France also ahead of forecasts. Unemployment data for the Eurozone met expectations and was unchanged at 9.3%.
  • Japanese economic data was generally positive. The Bank of Japan’s Q2 2017 Tankan survey revealed an optimistic outlook for the economy which surpassed analyst expectations. The Tankan large manufacturer’s index rose to 17 from the previous reading of 12. Similarly, the large non-manufacturer's index increased from 20 to 23, meeting forecasts. The services PMI rose to 53.3 from 53.0 and the finalised manufacturing PMI was marginally revised upwards to 52.4 from 52.0 over the same period. Despite the seemingly improving economic conditions, consumer confidence for June decreased by 0.3 points to 43.3.
  • There was not much in terms of economic releases in China last week. Most significantly, the Caixin Manufacturing PMI rebounded after falling for the past four consecutive months, rising from 49.6 to 50.4, outperforming analyst expectations and representing a return to expansionary territory for the manufacturing sector. The Caixin Services PMI, meanwhile, slipped 0.6 points to 51.6. China's foreign exchange reserves missed forecasts of U$3,061bn but continued on an upward trend to reach U$3,057bn from U$3,054bn.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Datastream. 
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The information contained above should be regarded as general information only. That is, your personal objectives, needs or financial situation were not taken into account when preparing this information. Accordingly, you should consider the appropriateness of acting on this information, particularly in the context of your own objectives, financial situation and needs. Nothing in this document should be treated as an authoritative statement of the law on any particular issue or specific case. Use of, or reliance upon any information in this post is at your sole discretion. It should not be construed as legal, tax or investment advice. Please consult with your independent professional for any such advice. The information contained within this blog is given as of the date indicated and does not intend to give information as of any other date. The delivery at any time shall not, under any circumstances, create any implication that there has been a change in the information since the date of publication, or any obligation to update or provide amendments after the original publication date. The blog content is intended for professional investors only.


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