The strength of the U.S. dollar dampened the improving returns in foreign stock and bond markets during the third quarter, while the strength of the U.S. market has created additional cause for concern at home, Salomon Brothers reports. In its quarterly pension sponsors' review, Salomon notes the Salomon Brothers World Equity Index was up 9.7% in local currency terms, but only rose 6.16% in U.S. dollar terms, while the Salomon Brothers World Government Bond Index was up 2.65% in local terms and down 1.05% in dollars. In the U.S. equity market, Salomon's strategists recommend three sets of defensive strategies:
Hedging strategies such as selling equity index futures, buying an equity index put option or put spread and entering a collar strategy.
Selling index call options for defensive return enhancement.
Buying spread options for diversification if the sponsor is concerned about better risk/reward characteristics in other markets.
Plan sponsors take note: The life expectancy of a typical 65-year-old male worker in an industrial corporation has increased by 1.25 years, a Buck Consultants study of mortality experience shows. The male can now expect to live until age 83. A typical 65-year-old female's life expectancy has increased 9.5 months, and her expected life span now extends to nearly age 87.
Pension costs eventually will increase to reflect the longer lifetimes, noted Henry Anderson, consulting actuary.
