This Review is an update of InvestorLiterature.com Review 2013(3) “Asset Mix: Pension Funds and LDI”. What happened in 2013 was “A Perfect Storm” for LDI strategies. Long bond rates and real rates rose significantly and equities performed very well in 2013, resulting in the best single calendar year improvement in pension funded status since 1957 (at least by my estimation). The case was made in the previous Review, that with rates at record lows and stocks appearing relatively cheap, to adopt an LDI strategy at this time could forego potential performance. We find this still to be the case, despite the recent rise in rates.
This Review discusses a recent paper by Professors Christos Ntantamis (formerly Mount Allison University, now TD Bank Group, Economics) and Jun Zhou (Dalhousie University), 2013 winner of the Hillsdale Investment Management Inc. – Toronto CFA Society Canadian Investment Research Award. Their paper presents a very insightful and original analysis of three commodities (gold, oil, and metals), showing that “there is little evidence that the market phases identified for the individual stocks are related to those for the commodity prices.” As such, this is a valuable finding for all investors, but especially Canadian investors, where the S&P/TSX 300 has a current weight of 50% in gold, metals, and energy.