24 Jan 2023
20 min read

Brighter Days Ahead? - Q1 2023

A storm at a beach looking out to the ocean

Download the full article

pdf - 2.51 MB

Download now

Brighter Days Ahead?

There is growing optimism that investors will fare better in 2023 than they did in 2022. The caveat is that better does not necessarily mean this year will be an especially good one for markets or that it will be easier to navigate. One headwind that could prevent the typical bounce back year often seen following bear markets is simply starting valuations. Following last quarter’s rally, many markets appear mispriced for recession in the US and Europe, which looks increasingly unavoidable. Nonetheless, it is unlikely that all major asset classes will end the year negative, as they did in 2022.

Additional highlights

  • Pension Solutions Monitor: We estimate that pension funding ratios increased over the fourth quarter of 2022. Based on market movements, the average funding ratio is estimated to have increased from 95.6% to 98.3%.
  • Fixed Income: As we begin 2023, fixed income investors are scrambling to find their bearings in this brave new world with one overarching inquiry top of mind: Will asset prices remain under duress or have valuations sufficiently baked in the new state of play?
  • Equities: Our general characterization of equity markets may be nothing more inspiring than, “uncertain.” However, we maintain our slightly bearish tilt, as the balance of the aforementioned dynamics shift the distribution of possible returns unfavorably, in our view.
  • Solutions: Navigating the uncertain times ahead can be aided by the usage of equity collar strategies that narrow the range of possible outcomes. Backed by historically attractive options market dynamics, now may be the right time for pension plans to consider deploying these strategies to help mitigate the risks of volatility. If options usage is new to your plan, we at LGIM America welcome the opportunity to provide additional insight and education concerning these strategies.

Download the full article

Read our thoughts and reflections with regards to the financial markets as well as timely topics by downloading our latest newsletter. 

Additional insights

Cash Money Bars

Cash Balance Plans

Portfolio Solutions - LDI

Because cash balance plans with yield-based crediting rates operate differently than traditional plans, it is vitally important for investment strategy, contribution strategy and actuarial assumption setting to operate in a coordinated fashion to meet plan sponsor goals.

Share prices graphic

Rethinking Overlay Manager Diversification

Portfolio Solutions - LDI

At LGIM America, we believe overlay manager diversification is likely inefficient and creates uncompensated risks. Using multiple overlay managers can result in increased costs, collateral inefficiency and higher governance burdens.

Views and opinions expressed herein are as of the date published and may change based on market and other conditions. The material contained here is confidential and intended for the person to whom it has been delivered and may not be reproduced or distributed. The material is for informational purposes only and is not intended as a solicitation to buy or sell any securities or other financial instrument or to provide any investment advice or service. Legal & General Investment Management America, Inc. does not guarantee the timeliness, sequence, accuracy or completeness of information included. Past performance should not be taken as an indication or guarantee of future performance and no representation, express or implied, is made regarding future performance.

Unless otherwise stated, references herein to "LGIM", "we" and "us" are meant to capture the global conglomerate that includes Legal & General Investment Management Ltd. (a U.K. FCA authorized adviser), LGIM International Limited (a U.S. SEC registered investment adviser and U.K. FCA authorized adviser), Legal & General Investment Management America, Inc. (a U.S. SEC registered investment adviser) and Legal & General Investment Management Asia Limited (a Hong Kong SFC registered adviser). The LGIM Stewardship Team acts on behalf of all such locally authorized entities. © 2024 Legal & General Investment Management Limited. All rights reserved. No part of this publication may be re-produced or transmitted in any form or by any means, including photocopying and recording, without the written permission of the publishers.