24 Oct 2023
20 min read

The In-Between Time - Q4 2023

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The In-Between Time

The in-between time seems to be a period where monetary policy may appear to have less of an immediate impact on the economy. The recent strength in the labor market is a case in point. Similarly, investors should be prepared for the possibility that the pace of disinflation may slow or even reverse in the coming months. At the very least, the in-between time can create the impression among investors that the economy can endure and adapt to monetary policy at current levels. However, until the long lags come into effect, it seems premature to draw this conclusion. 

Additional highlights

  • Pension Solutions Monitor: We estimate that pension funding ratios decreased over the third quarter of 2023. Based on market movements, the average funding ratio is estimated to have decreased from 103.5% to 102.6%.
  • Fixed Income: In investment grade credit, we remain modestly defensive as spreads are now tighter than before the cycle began, while downside risks have proliferated. In terms of sectors, we view utilities as an attractive overweight irrespective of the macro view, and we expect sovereign spreads to widen when economic data starts to roll over. 
  • Equities: A decline of 3-4% for the quarter across many broad domestic and global indices is not an aberration against the backdrop of rising rates and their potential to restrict growth. However, dynamics under the surface of index-level performance illuminate market expectations and related implications for prospective risks.
  • Real Assets: We see AI as a material trend with upside potential for productivity and growth, creating new investment opportunities within the real assets universe. 

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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.

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