Irish pension fund returns negative in 2016 and past 12 months
The volatility in global markets in the first two months of 2016 has resulted in negative returns for Irish pensions and the performance over the past 12 months was also in the red.
Fiona Daly of Rubicon Investment Consulting commented on Wednesday that February was a disappointing month overall for Irish pension funds, which fell back 0.7% on average. Some funds made gains however, with Setanta Asset Management ranked top this month with a return of +0.7%, while Merrion Investment Managers propped up the league table with a return of -1.7%. So far, 2016 has been a gloomy year, with pension funds down 5.0% on average.
Returns for the year to date ranged from -2.4% (Setanta Asset Management) to -7.4% (Standard Life Investments). Over the past 12 months, the average fund return was a disappointing -5.7%. Setanta Asset Management top the table over the past year with a return of -3.8%, while Friends First/BMO and Standard Life Investments produced the lowest returns at -7.5%. The average managed fund return has been a very strong 10.5% per annum over the past 3 years. The 5-year average return is a healthy 9.0% per annum. Irish group pension managed fund returns over the past 10 years have been 3.9% per annum on average.
The Aon Hewitt Managed Fund Index, an index representing the performance of traditional Irish pension managed funds, fell -0.6% in February. Furthermore, the index delivered a negative return of 4.2% over the past 12 months.
Global equity markets fell over the month of February. The FTSE All World Index decreased by 1.1% in euro terms. The ISEQ Index was the strongest performer in euro terms returning 0.2% while the FTSE Japan was the worst performer in euro terms returning -3.5%.
"Global equities continued their downward spiral into February and the pattern was similar to January, with losses over the first half of the month - driven by a reduction oil prices and concern over global growth - somewhat recovered by month end with oil prices and mixed economic data driving a volatile final week of the trading," commented Nicholas Hatherley.
Core Eurozone bond yields fell over the month. The German 10 year bond yield finished at 0.11%, a decrease of 16 basis points (bps) or 0.16%). The French 10 year bond yield fell by 18 bps to 0.48%. The peripheral Eurozone government bond yields increased in general over the month. The Portuguese 10 year bond yield rose 25 bps to 2.92%. The Italian 10 year bond yield dropped to 1.40%, a decrease of 3 bps. The Irish 10 year bond increased 11 bps, finishing at 0.79%.
February was a similar — albeit less severe – month to January, characterised by core Eurozone bond yields and equity markets falling. The experience of Irish pension schemes’ funding levels is therefore also likely to have been similar, although losses are likely to have been less stark. As always the extent of asset liability matching will define how funding levels move, with high bond allocations protecting against yield falls. There is however little to protect schemes from sell-offs in return-seeking assets, although diversification within the growth portfolio is something we encourage clients to consider to limit such losses.
Source: Rubicon Investment Consulting