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Anthony Brown
US Director of Capital Markets
Jay Love
US Investments Leader
Susan McDermott
US Director of Strategic Research
April 9, 2020
-43.9
-42.3
-28.3
-27.5
-23.6
-23.2
-22.8
-21.4
-19.6
-15.2
-12.7
-6.0
-3.6
0.5
1.7
2.0
3.2
8.2
20.9
-60 -40 -20 0 20 40
Natural Res Stks
Commodity Futures
Global REITs
Intl Sm-Cap Stks
Emerg Mkt Stks
US SMID-Cap Stks
Intl Large-Cap Stks
Global Stocks
US Large-Cap Stks
Emerg Mkt Debt (Local)
US High Yield Bonds
Funds of Hedge Funds
US I/G Corp Bonds
T-Bills
US TIPS
Global Fixed (unhedged)
Aggregate Bonds
US Treasuries
Long Treasuries
First Quarter Performance (%)
Source: Datastream
-60%
-50%
-40%
-30%
-20%
-10%
0%
0 2 4 6 8
10
12
14
16
18
20
22
24
26
28
30
32
34
36
38
39
41
43
45
47
49
51
53
55
S&P 500 Drawdowns
Tech Bubble GFC COVID-19
Months from PeakSource: Bloomberg; through 4/9/20
0
1
2
3
4
5
6
2012 2013 2015 2017 2019
Yield History
2-Year Treasury 10-Year Treasury
30-Year Treasury Long Corporate
Source: Bloomberg, Federal Reserve; through 3/31/20
(%)
90%
95%
100%
105%
0 1 2 3 4 5 6 7 8
Pe
rcen
t o
f S
tart
ing G
DP
Quarters Since Beginning of Recession
US Real GDP
2020 Consensus Forecast 2008 2000
Source: Bloomberg, St. Louis Federal Reserve Bank (FRED).
0.0
0.5
1.0
1.5
2.0
2.5
3.0
201
5
201
6
201
7
201
8
201
9
202
0
(%)
Investment-grade CorporateCredit Spread
Source: Bloomberg; through 4/7/20
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
201
8
201
9
202
0
(%)
LIBOR-OIS Spread
Source: Bloomberg; through 4/2/20
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Jan-19
$T
rilli
on
s
Federal Reserve Assets and Excess Bank Reserves
Federal Reserve Assets
Excess Bank Reserves
Source: Bloomberg; through 4/1/20
-4
-2
0
2
4
6
8
10
193
0
193
7
194
4
195
1
195
8
196
5
197
2
197
9
198
6
199
3
200
0
200
7
201
4
(%)
CPI InflationRolling 10 Years
Source: Bloomberg; through 12/31/19
0.0
0.5
1.0
1.5
2.0
2.5
3.0
200
0
200
2
200
4
200
6
200
8
201
0
201
2
201
4
201
6
201
8
202
0
(%)
Inflation Breakeven Rate on 10y TIPS
Source: Bloomberg; through 4/8/20
0.0
1.0
2.0
3.0
4.0
5.0
6.0
198
9
199
1
199
3
199
5
199
7
199
9
200
1
200
3
200
5
200
7
200
9
201
1
201
3
201
5
201
7
201
9
(%)
Investment-Grade Corporate Bond Credit Spread
OAS
Median OAS
Source: Bloomberg; through 3/31/20
0
500
1,000
1,500
2,000
2,500
3,000
200
0
200
2
200
4
200
6
200
8
201
0
201
2
201
4
201
6
201
8
$ B
illio
ns
Outstanding Par Value of Corporate Baa Universe
Source: Bloomberg; through 3/31/20
0
2
4
6
8
10
12
14
16
18
20
198
7
198
9
199
1
199
3
199
5
199
7
199
9
200
1
200
3
200
5
200
7
200
9
201
1
201
3
201
5
201
7
201
9
(%)
High Yield Bond Option Adjusted Credit Spread
OAS
Median OAS
Source: Bloomberg; through 3/31/20
HY
OAS
Quintile Range 12M 36M
1 <3.4 -0.4 -2.0
2 3.4 to 4.1 3.6 2.2
3 4.1 to 5.2 -1.3 0.6
4 5.2 to 6.8 2.6 3.6
5 >6.8 9.9 8.0
Subsequent Average Excess
Return to Treasuries
1 9 8 7 T O 2 0 1 9
Source: Bloomberg, Mercer calculations
-30
-20
-10
0
10
20
30
40
Ja
n-1
5
Ju
n-1
5
Nov-1
5
Apr-
16
Sep
-16
Fe
b-1
7
Ju
l-1
7
Dec-1
7
Ma
y-1
8
Oct-
18
Ma
r-19
Aug
-19
Ja
n-2
0
De
c-0
7 =
1
Forward Earnings EstimatesYear-over-year Change
US Eurozone
UK Japan
Emerging
Source: Datastream; through 3/31/20
0
10
20
30
40
50
60
70
Pe
r S
ha
re
S&P 500 Dividend Futures
Source: CME Group; as of 4/8/20
0
5
10
15
20
25
30
35
40
45
197
81
98
01
98
21
98
41
98
61
98
81
99
01
99
21
99
41
99
61
99
82
00
02
00
22
00
42
00
62
00
82
01
02
01
22
01
42
01
62
01
8
Shiller P/E(10y Average Real Earnings)
MSCI US
MSCI EASEA (EAFEex-Japan)
Source: Datastream, MSCI, Mercer; through 3/31/20
18.0
13.012.6
12.5
22.7
12.7
16.2
10.5
2.3
4.5
2.8 3.2
0
5
10
15
20
25
30
MSCI US MSCIEurope
MSCIJapan
MSCI EM
Global Valuations
P/E Trailing
Shiller's P/E
Dividend Yield
Source: Bloomberg, Datastream, Mercer; as of 3/31/20
-2
-1
0
1
2
3
4
5
6
7
8
199
0
199
2
199
4
199
6
199
8
200
0
200
2
200
4
200
6
200
8
201
0
201
2
201
4
201
6
201
8
202
0
(%)
S&P 500 - Equity Risk Premium Versus Long-Term Treasuries
Source: Bloomberg, Datastream, Mercer; through 3/31/20
75
80
85
90
95
100
105
0.7
0.9
1.1
1.3
1.5
1.7
1.9
2.1
2.3
2.5
2.7
Ja
n-1
4
Ju
l-1
4
Ja
n-1
5
Ju
l-1
5
Ja
n-1
6
Ju
l-1
6
Ja
n-1
7
Ju
l-1
7
Ja
n-1
8
Ju
l-1
8
Ja
n-1
9
Ju
l-1
9
Ja
n-2
0
DX
Y
US
/ D
XY
Ba
ske
t 1
0y R
ate
Sp
rea
d
Dollar Index (DXY) and10y Rate Spread
US / DXY Basket 10y Rate Spread (LHS)
DXY (RHS)
Source: Bloomberg; through 3/31/20
-20
-10
0
10
20
30
40
50
197
3
197
6
197
9
198
2
198
5
198
8
199
1
199
4
199
7
200
0
200
3
200
6
200
9
201
2
201
5
201
8
Rela
tive
to
Ge
om
etr
ic M
ea
n (
%)
US Dollar - Real Effective Exchange Rate
(Major Currencies)
Source: Bloomberg; through 12/31/19
-12.5%
-24.2%
-20.0%
-31.7%
-25.8%
-35.7%
-15.1%
-17.3%
-40% -30% -20% -10% 0%
Russell Top 200 Gr
Russell Top 200 Val
Russell Midcap Gr
Russell Midcap Val
Russell 2000 Gr
Russell 2000 Val
MSCI USA Quality
MSCI USA Min Vol
US Style PerformanceFirst Quarter
Source: Datastream
-20
-15
-10
-5
0
5
10
15
200.0
0.3
0.5
0.8
1.0
1.3
1.5
1.8
2.0
198
0
198
3
198
6
198
9
199
2
199
5
199
8
200
1
200
4
200
7
201
0
201
3
201
6
201
9
Russe
ll 1
00
0G
–R
usse
ll 1
00
0V
5y (
%)
Re
lative
to
Me
an
Russell 1000 Growth/Value Valuationand Subsequent Performance
Valuation of R1000G/R1000V
Subsequent 5-Yr Relative Return (R1000G - R1000V)
Source: Bloomberg, Mercer; through 3/31/20
-15
-10
-5
0
5
10
15
20-80
-60
-40
-20
0
20
40
60
198
0
198
4
198
7
199
0
199
4
199
7
200
0
200
4
200
7
201
0
201
4
201
7
Ru
ss
ell
20
00
-S
&P
50
0 5
y
(%)
Devia
tio
n f
rom
Me
an
(%
)
Small-caps / Large-caps Valuationand Subsequent Performance
Relative Valuation (LHS)
Subsequent 5y Excess Return (RHS)
Source: Ned Davis Research, Bloomberg, Datastream,
Mercer; through 3/31/20
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2. Revisit risk tolerance and time horizon
3. Understand current portfolio and exposures
4. Consider opportunities for action
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% off Target
$
Net Benefits =
Benefits -
Costs
Costs
T
Action Trigger Point
(T) where benefits
exceed cost
Benefit
Rebalance halfway to
target to get most of the
potential benefits with
reduced cost
Ris
k R
ed
uc
tio
n B
en
efi
t /
Co
st
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27© MERCER LLC 2020
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