Category Archives: Financial risk management

Milliman FRM Market Commentary: July 2018

Stocks hit the ground running to start the second half of 2018. In this month’s commentary, Milliman’s Joe Becker addresses the following:

• All three major segments of the global equity market pushed higher in July amidst cooling trade war rhetoric, rising global interest rates and reports of strong economic growth.
• With its fourth consecutive positive monthly return and its best since January, the S&P 500 increased its YTD return to 6.5%.
• Small-cap stocks continued their winning streak with their fifth consecutive month of positive returns, during which they’ve risen 14.5%.
• After touching a YTD low in late June, EM equities reversed course in July, benefiting from a reprieve in the US dollar’s ascent and climbing 2.5%, their first positive monthly return in six months.
• The relatively low equity market volatility in June extended into July as positive news outweighed the negative, pushing stock prices gradually higher.
• After declining in June, the correlation of the S&P 500 to global ex-US equities increased steadily higher during July, while its correlation to the U.S. aggregate bond market, after rising and falling remained largely unchanged.

To learn more, download the full commentary at

Retirement income covenant considerations for Australia’s superannuation system

The riddle of the superannuation system is that the needs of workers saving for retirement are relatively simple while the needs of retirees are incredibly complex. Those saving for retirement want to generate the highest long-term investment returns within certain tolerances for risk. Retirees want to generate the highest lifetime income possible with both certainty and flexibility.

Super fund trustees will soon need to balance these competing objectives thanks to a proposed Retirement Income Covenant. This covenant will codify their requirements and obligations to improve retirement outcomes for members.

The challenge for super fund trustees centres on Comprehensive Income Products for Retirement. Funds must take care in constructing a retirement income strategy, especially one that focusses on the “collective needs of members” as described in the covenant position paper.

To read more about the challenges facing trustees as they begin to grapple with the proposed Retirement Income Covenant, see this article by Milliman’s Jeff Gebler and Adam Shao.

Milliman FRM Market Commentary: June 2018

Global equity segments sharply diverged heading into second half. In this month’s commentary, Milliman’s Joe Becker addresses the following:

• The S&P 500 notched its third positive monthly return, locking in a solid Q2 gain of 3.4%. Relative to last year, however, its year-to-date (YTD) return of 2.6% is less than one-third of what it was through this time in 2017 (9.3%).
• Meanwhile, small cap stocks, deemed to have less exposure to the detrimental effects of trade wars, are up 9.4% YTD, their best first-half return of the last five years.
• The same cannot be said for emerging market stocks, which were down more than 7% in Q2 and are down nearly 15% from their all-time high in January. Among the worst performers have been China and Brazil, down 13% and 18% YTD, respectively, in USD terms.
• Notwithstanding back-and-forth trade war rhetoric, U.S. equity market volatility trended lower as the month wore on; June’s volatility was lower than May’s and was also below its five-year average.
• The correlation of the S&P 500 to global ex-U.S. equities declined during the month while its correlation to the U.S. aggregate bond market remained largely unchanged.

To learn more, download the full commentary at

Helping Australians make effective savings decisions today for a better retirement future

Superannuation is one of the most valuable products working Australians own. Yet it’s one of the products they care least about.

Forcing people to buy a product when the value can’t be unlocked for many years is not a good starting point for engagement. Attempting to persuade members to save more super by using broad-based one-size-fits-all targets has failed.

But research suggests that when members are able to see their future selves in vivid and realistic detail, they are more willing to make choices today that may benefit them in the future. Super funds can play a role in connecting the two.

In this article, Milliman’s Jeff Gebler says that the super industry’s dominant comfortable retirement savings target is not indicative of who its members are or who they will become. He says that funds can help members see themselves in meaningful, positive terms, thus sparking genuine engagement and better long-term decisions.

Milliman FRM Market Commentary: April 2018

Stocks settle in as interest rate questions loom. In this month’s commentary, Milliman’s Joe Becker addresses the following:

• After two consecutive months of market tumult (comparatively speaking) and negative returns, the S&P 500 in April exhibited greater calm and eked out a positive return.
• Volatility was lower in April than it was in March and closer to its five-year average across each of the major segments of the global equity market.
• Unlike 2017, markets in post-January 2018 have been much less decisive. On the one hand, strong global economic growth and pro-growth tax cuts are reasons for optimism. On the other, trade-tariff wars and rising interest rates are undermining investor confidence about potential future earnings growth.
• The U.S. dollar broke upward out of its three-month range, creating a headwind and potentially higher volatility for non-U.S. equities.
• Correlations between major equity market segments were little changed in April. The correlation between U.S. stocks and bonds, however, edged higher as rising interest rates and widening credit spreads weighed on bond market returns.

To learn more, download the full commentary at

Milliman FRM Market Commentary: March 2018

March validated February’s initiation of a new, higher volatility regime. In this month’s commentary, Milliman’s Joe Becker addresses the following:

• March capped off the S&P 500’s first negative quarterly return since Q3 2015 and the first negative Q1 since 2009.
• After not experiencing a single daily move of more than 2% through all of 2017, the S&P 500 has now seen six such moves through February and March.
• If “taper tantrum” was a fitting moniker for the 2013 reaction to the prospect of ending the U.S. Federal Reserve’s quantitative easing (QE), the volatility in early 2018 might well be referred to as the “tightening, tech, trade-tariff tantrum,” as markets reacted to tighter monetary policy, a data breach at Facebook, and the prospect of a tariff-induced trade war.
• While not as high as it was in February, volatility in March was still above its five-year average and much higher than it was in 2017.
• Falling interest rates boosted the U.S. aggregate bond market, reducing its correlation to equities and improving it as a diversifier, while the correlation between U.S. and foreign equities increased.

To learn more, download the full commentary at