Market moves: Research suggests investors seeking the hedging of gold must be prepared to accept volatility, while a professional trustee company reassures over the state of defined benefit sponsors.
Goldbugs take note
The coronavirus pandemic has poked holes in any assumptions that gold is a foolproof safe-haven asset, but its hedging capability is still considerable, according to a report by investment consultancy Mercer. The commodity has generated returns of 6 per cent over the first quarter of 2020, but at the cost of significant volatility. Meanwhile, the access route chosen by investors has had a strong impact on returns, with gold equities dragged down by broader moves in those markets. Mercer suggested the "mid-March stumble" in the gold price was caused by leveraged investors seeking to sell a liquid asset that had made recent gains to meet margin calls.
Sponsor distress far from universal
Market volatility and weakening sponsor covenants have had an impact on defined benefit schemes in the UK, but analysis of the clients of one leading professional trustee company suggests the nation has not yet suffered a major pensions catastrophe. PTL groups its clients into four risk categories, ranging from those where collapse is imminent to those in rude health without the slightest concern. Managing director Richard Butcher told Pensions Expert only 9 per cent of clients by fee revenue fall into the third tier, and none are currently in the worst category. "That 9 per cent was previously 3 per cent, so it's tripled, but it's still only 9 per cent," said Mr Butcher. He urged trustees to be alert to all forms of covenant leakage when assessing proposed contribution holidays for employers, reminding them that intra-group loans and cash pooling can also affect sponsor health, alongside more obvious payouts to other creditors and shareholders.
Collapse in transfer activity
Member requests for defined benefit transfer value quotations have fallen to their lowest level since the introduction of freedom and choice, according to analysis of LCP's administration clients. The consultancy said the fall, to around 10 requests a week across a sample of 80 schemes, could be down to a combination of increased appreciation of the value of DB, disruption to financial adviser work, and members having more pressing issues to deal with. The Pensions Regulator's approval for the temporary suspension of quotations is expected to depress requests further, but the consultancy cautioned that schemes with distressed sponsors in particular are still seeing heightened transfer interest. Commenting, Bart Huby, partner at LCP, said: “What is not yet clear is whether transfer volumes will bounce back later in the year as schemes relax temporary restrictions on processing transfers and more members decide that they need to access their pensions to meet financial pressures.”
