The Pension fear gauge. Forget the volatility index there’s something much better to trade off. 

Being a fan of VIX (and not the kind you rub on your chest after a couple of ‘Es’ at a rave) and how it ‘gauges’ relative fear of markets I love it when similar methodology is applied in other areas.

Now, what catches my eye about the following ‘market analysis’? (from XPS)

Who are XPS Pensions Group?

UK specialist in pensions actuarial and investment consultancy and administration
XPS Website

Lovely, love a specialist and especially actuarial number munchers and investment consultants. 

I’ll put my disclaimer early on. This is my opinion. Legal wind it in.

As Tony Montana said in Scarface:

“You know somethin’? You can send me anywhere. Here, there, this, that; it don’t matter. There’s nothing you can do to me that Castro has not done.”

Tony Montana (Al Pacino from film Scarface)

Look at the chart below:

FROM XPS

Now read the commentary or ‘market analysis’ as I like to call this ‘sort of stuff’:

FROM XPS

Pension Fear Gauge – Decreasing Pension Transfer Values

So the Transfer Value Index (call it TRIX for short) fell from:

£249,700 at end of Feb 

To

£242,600 at the end of Mar

A whopping 2.8%!

A significant sum if it kept that up all year.

If that continued at that rate by the end of the year our £249,700 would be hammered down to -2.8, -2.8. -2.8, -2.8, -2.8, -2.8, -2.8, -2.8, -2.8.

One of my Sons and his calculation

You see where we’re heading.

But as we all no, sorry know.

“Past performance has nothing to do with the future”
Somebody who realised things go down as well as up

Can you find any analyst who can tell you what the next price will be, for anything?

With 100% certainty? No, you can’t. If you do, let me know.


 

So, what’s the Pension Fear Gauge blag ? (sorry commentary):

“This relatively small fall is a result of gilt yields being at similar levels on the month ends but this masks a much more turbulent month for transfer values”
FROM XPS

C’mon XPS you need to do a bit better than that! 

Gilt yields at similar levels, yeah, no change there then.

Meaning – next to nothing.

‘Masks a much more turbulent month for transfer values’, er yeah, what’s all that about then?
FROM XPS

Perhaps this turbulence is explained in a more ‘granular’ analysis.

Then look to the ‘Market Analysis’ which switches to weekly analysis and quotes the TRIX (remember this is the pension transfer ‘fear’ index) as:

Falling 11% to a low of £222,800

A level not seen since………..

July 2016

Before recovering to the quoted (lets call it) monthly close at £242,600!

Proper market making interweek trading commentary and analysis!

What is our TRIX really telling us?

Volatile values for sure.

Transfer quote mid March 2020

£222,800

End of March 2020

£242,600

This is really messed up.

Pension Fear Gauge – The TRIX chart

Let’s take a look at the handy looking TRIX chart again (for a look at what has happened).

FROM XPS

On the left hand side – of the ‘stage’ – we have the Transfer Value Index.

On the right hand side – of the ‘stage’ – we have the Transfer Activity Index.

Or to me the TRIX or Pension Transfer Fear Gauge.

Looking to the left we see an increasing value right up to approx September 2019 where we peak. Then a decline down in December 2019 before rising through January 2020, and plummeting (in line with most other markets) to a paltry £222,000.

Dicey from a trading perspective.

Unless we design some calls and puts using strike prices at corresponding price intervals for the futures *sorry future*. Then regardless of whether values fall or rise we can pocket a few quid on the frequency of any falls and rises, the steeper the better.

On the right ‘Transfer Activity’ peaked in September 2019 buy mainly stayed around a ‘mean’ of 2.5% (approx).

Rubbing Your Balls (Crystal that is)

Just like trading using the VIX with the simple basis of dividing by 16. Magic number 16.

Implied volatility a ‘peak’ of Covid -19 fear 80 odd, so divide by 16 with volatility of 5% then almost halving (as volatility decreased) to 40 odd, giving 2.5%. This has panned out in the recent weeks if you take a look.

If TRIX is the new pension transfer gauge we need some products formulated to trade it.

This can start with an answer from XPS. If you’ve developed the TRIX based on VIX what (if any) tradeable products are in the pipeline? If not, why not?

Or is this just a picture to show how transfer values have decreased in line with transfer activity, which isn’t saying anything much at all.


5 Pension related advisor Risks to overcome due to Covid – 19

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