26 Jul 2022
20 min read

A Double-edged Sword - Q3 2022

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A Double-edged Sword

We’re excited to introduce our new quarterly Investment Outlook publication. We devote our first issue to cross-cutting factors in the current economic environment. Despite widespread anticipation of recession, businesses show no signs of defensiveness, consumer spending remains strong and labor demand remains high. The possibility remains that the Fed may have to raise interest rates further to bring inflation under control. 

Additional highlights

  • Pension Solutions Monitor: We estimate that pension funding ratios decreased over the second quarter of 2022, with the average funding ratio decreasing from 96.3 percent to 94.0 percent during this timeframe.
  • Fixed Income: We argue that it is premature to get outright constructive on credit as global central banks continue their sprint towards neutral, and in some cases, restrictive policy rates at the expense of growth.
  • Equities: Without a higher risk of a severe recession, we view current markets as already quite bearish, and, accordingly, have reduced short positions in some risk markets and taken a very tactical long position in US equity.
  • Rates: With rates currently sitting around 30 basis points below the post-COVID highs from June and no sign of inflation abating, we remain bearish on rates and expect them to move higher from these levels.

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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.