Yogi Berra once famously said, “It ain’t over till it’s over.” That was certainly true for 2023.
Just when it looked like many of the same issues that investors faced in 2022 would hold down returns, 2023 finished strong. Like 2022, 2023 was another tumultuous period marked by geopolitical uncertainties and the Federal Reserve’s continued efforts to control the highest inflation in four decades through aggressive interest rate hikes. The financial markets experienced significant volatility with a challenging landscape for generating positive returns. Unlike 2022, the end of the year saw a confluence of favorable market developments, including a downward trend in inflation, continued strong economic growth, and signals from the Federal Reserve that further interest rate hikes are unlikely.
The WRS Trust Funds have shown resilience, with positive returns in key asset classes. The Core Trust Fund ended 2023 with a preliminary return of 11.4% net of all fees. The Variable Trust Fund closed out the year with a preliminary return of 22.2% net of all fees. Over the long term, both Trust Funds have performed well. The Variable Trust Fund continued to produce positive long-term results. The Core Trust Funds’ 5- and 10-year returns remain above the 6.8% assumed rate of return. The strong absolute investment returns in four of the last five years will benefit the WRS through positive annuity adjustments and allow contribution rates to remain stable into 2025.
As we turn the page to 2024, the new year gives us a chance to reflect back on the year that was but remain focused on the opportunities and challenges that are ahead. Will the Federal Reserve hold interest rates steady in a bid to finish the job of taming inflation, or will 2024 see the beginning of rate cuts? As geopolitical crises carry on, what will be the impact on the global economy? What effect will the November presidential election have on the financial markets?
No one knows for sure what the answers to these questions will be. As long-term investors, we have implemented an asset allocation and an investment strategy design to weather various market conditions. The market corrections and volatility in recent years emphasize the importance of maintaining a fully funded pension system that can meet its commitment to over 675,000 WRS participants. We are maintaining a disciplined process and sticking to fundamentals. We remain focused on increasing active return through improved investment strategies, optimizing our operations and technology infrastructure, and continuing to enhance our talent acquisition, retention, and management.
Although there is significant uncertainty as we start the journey through the new year, one thing I am certain of is SWIB and the WRS are well-positioned to confront whatever challenges may be in store for investors in 2024. As always, we will be hard at work navigating the ever-changing financial landscape for the participants of the WRS.
You can hear more from Edwin on the January episode of The SWIB Podcast. Edwin will take a more in-depth look back at 2023 and glance forward to what we might expect in 2024. You can find all episodes of The SWIB Podcast at www.swib.state.wi.us/podcasts.