After a strong start of the year, fear and volatility made a comeback in March, this time in the form of a banking crisis. Market turmoil started from the US with the collapse of Silicon Valley Bank (SVB), whose failed attempt to raise capital in order to meet deposit outflows, triggered a selloff on its shares and a bank run on its deposits. US bank regulators were forced to step in and take control of the bank and had to provide assurances to the banking sector by safeguarding deposits and by setting up a special lending program for affected financial institutions. Despite US authorities’ attempts to calm down the markets, other US regional banks suffered a similar fate with the failure of Signature Bank, while large Wall Street banks had to step in and to deposit $30bn into First Republic to save the struggling bank. The heightened anxiety surrounding the soundness of the banking sector spilled over to Europe, as Credit Suisse came under renewed pressure after revealing “material weakness” in its financial reporting which triggered a massive exodus of depositors and investors, leading to the intervention of the Swiss National Bank and Credit Suisse’s inevitable takeover by its rival UBS.
The effect of the recent banking turmoil on global markets
Fear regarding a possible banking crisis drove investors into safe haven assets such as government bonds and money market funds, while the subsequent central bank interventions and global recession concerns prompted a sharp downwards adjustment on investors’ expectations regarding central banks’ interest rate path. This led to a sharp decline on bond yields and an appreciation in the price of bonds. Surprisingly, despite the market turmoil, overall equity markets appeared resilient ending the month on the upside, but the financial sector did suffer losses.
Ancoria’s Pension Fund exposures
In light of the above, we would like to assure you that the Ancoria Pension Funds exposure to the aforementioned banks is extremely immaterial. At any given time, the Ancoria Pension Funds are well diversified and are invested in a number of exchange traded funds or mutual funds that invest across hundreds of holdings thus limiting any significant exposure to any single counterparty. Any impact that the above events would have on the Ancoria Pension Funds would be via the overall performance of the global stock and bond markets. Nonetheless, we are closely monitoring market developments and are tactically positioned conservatively versus our Strategic Asset Allocation by being overweight in cash and fixed income and underweight global equities.
What does this mean for your pension savings?
Pension saving is a long-term investment that has historically ridden out all sorts of financial crises of the past. As you don’t normally have access to your pension savings before retirement, this means you can invest it differently from money that you save to cover your short-term needs. Generally, the longer your time horizon, the higher the risk level you can assume, as you have the time to ride out any periods of short-term market volatility and recover any losses, although this is not guaranteed.
The Ancoria Pension Funds have made a strong start since the start of the year. As no one can predict with certainty how markets will move, it is essential to remain invested with a strategy that matches your investment horizon, your investment objectives and your appetite and tolerance to risk.
As always, the Ancoria team is here to help you so don’t hesitate to contact us if you would like to discuss about your pension account.