Janet Rabovsky is an experienced investment professional.
These are the views of the author and not necessarily those of Benefits Canada.
Janet Rabovsky is an experienced investment professional.
These are the views of the author and not necessarily those of Benefits Canada.
The question of whether and how to invest in emerging market equities is one that is often asked by investors. There seems to be broad support for the thesis that emerging economies offer access to superior long term, albeit volatile, growth. The question remains how investors can best access that growth. While many investors have already made the decision to invest, either through a discrete allocation or through existing global or international equity managers, there are many who have yet to jump on the bandwagon.
It’s hard to watch the news these days without hearing about the tug of war that’s going on between Russia and the Ukraine. As the situation has escalated, markets have reacted nervously: with sharp declines, particularly in Europe, followed by sharp increases and then more declines. The current crisis in the Ukraine is a stark reminder that non-financial events, such as geopolitics, can and do impact capital market outcomes.
We keep hearing about institutional investors’ shift from traditional asset classes to alternatives such as hedge funds and real estate. But this march is actually old news. Towers Watson’s 2013 Global Pension Assets Study shows that Canadian pension plans’ allocations to alternatives were only 6% in 1999 but hit 23% in 2012.
With 2013 well and truly over, a number of us begin to prepare for committee meetings—if they haven’t already been held—to discuss performance. Supported by extremely strong equity market returns during 2013, the average Canadian DB pension plan earned in excess of 14%. In combination with the increase in bond yields over the course of the year, this has many Canadian pension plans approaching funding levels not seen since before the financial crisis began. Suffice it to say, these will be pleasant meetings.
Over the past few years, many plan sponsors have sought to de-risk their DB pension plans. This has manifested itself in different ways—from simply diversifying the return-seeking portfolio to purchasing more matching bonds in order to stabilize contributions and better match liabilities. The latter activity has often involved developing a journey plan—a pre-set range of actions or glide path that the plan sponsor will take when something happens. Usually, the triggers are related to an interest rate level, a funded ratio or a combination of both.
Earlier this month, the province of Ontario released its economic outlook and fiscal review. A key part of the outlook is to continue to build modern public infrastructure such as public transit, highways, hospitals and schools to support economic growth, prosperity and job creation.
For years, investors have been focused on emerging markets, starting with the BRICS (Brazil, Russia, India and China), and expanding to include other countries, such as Malaysia, Mexico, South Korea and Taiwan. The main argument for investing in emerging markets is access to sustained, above-trend economic growth that should translate into higher profits and therefore returns.
The past few years have been difficult for DB pension plans in Canada. Continued equity market volatility and, until recently, extremely low interest rates have made financial management of DB plans extremely challenging, especially for those subject to solvency valuations.
One of the recent trends in private equity is crowdfunding. In the context of private company funding, crowdfunding is used to sell small amounts of equity in a company to a large number of investors. Traditionally, this has been the purview of venture capital initiatives, where new ideas are funded through capital raising, usually first from family and friends, and later through private placements and/or strategic investors.
While we in the investment industry like to analyze market data and trends, returns over the past five years have been heavily influenced by macro events and policy errors. Some believe that macro events will shape markets and economies over the long term. Therefore, it’s worth identifying these themes so that investors can construct portfolios to take advantage of or avoid a particular theme.
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After being off of Canadians’ radar screens for years, the re-emergence of inflation in recent months is receiving significant attention for many, including pension plan…
Over the past several months, much attention has been paid to the coronavirus pandemic’s impact on financial markets and, subsequently, defined benefit pension plans’ financial conditions…
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