Irish pension managed funds slide in August due to China volatility
Irish pension managed funds delivered negative returns during August, with the average loss being 5.9%. Setanta Asset Management were ranked top this month with a return of -4.2%, while Friends First/F&C propped up the league table with a return of -6.9%.
Fiona Daly, Rubicon Investment Consulting, commented: "Despite this, Irish pension funds remain in the black for the first eight months of 2015, with an average return of 5.8%. Merrion Investment Managers top the table over the year to date with a return of 9.5%, while Kleinwort Benson Investors produced the lowest return at 4.1%. Over the past twelve months, the average fund return was 11.6%. Returns for the year ranged from 17.8% (Merrion Investment Managers) to 6.8% (New Ireland), representing a difference of 11% between the best and worst performing funds over the past twelve months.
The average managed fund return has been a very strong 13.7% per annum over the past three years. The five-year average return is a healthy 11.2% per annum. Irish group pension managed fund returns over the past ten years have been 5.2% per annum on average."
The Aon Hewitt Managed Fund Index, an index representing the performance of traditional Irish pension managed funds, decreased by 5.6% in August. However, the index has still delivered a positive return of 5.7% since the beginning of the year and 11.1% over the past 12 months.
Global equities sold off heavily over the month driven by weak economic data, falling commodity prices and volatility in the Chinese stock market. Negative returns were delivered across all regions after a highly volatile month for global equities. Central Bank action by the People’s Bank of China (PBOC), lowering both the 1-year lending rate and the reserve requirement ratio in response to equity market turmoil, combined with better economic growth data out of the United States, helped erase earlier losses during the month. Over the month, the FTSE All World Index decreased by 8.1% in euro terms. Emerging equity markets have made greater losses; the MSCI Emerging Market Index was down 10.3% as emerging currencies have continued to take the strain. The ISEQ Index was among the best performing regions, returning -1.6%.
"The trigger for equity weakness has been a concern over Chinese growth on the back of continuing weak economic data, and also worries that the small renminbi devaluation earlier this month reflected Chinese authorities’ concern about the state of the economy. While risks do exist surrounding Chinese financial bubbles, our central scenario remains that a hard economic landing will be avoided. We also think that the renminbi devaluation most likely reflects a step towards liberalisation of China’s financial markets rather than primarily an attempt to gain international competitiveness," commented Denis Lyons, senior investment consultant at Aon Hewitt.
Bond markets also fell over the month. The German 10 year bond yield finished at 0.74%, an increase of 0.13% over the month. Peripheral Eurozone government bond yields also increased; the Portuguese 10 year bond yield increased 0.28% to 2.67%, the Italian 10 year bond yield increased to 1.98%, and the Irish 10 year bond increased 0.43% finishing at 1.47%.
Commodities have also weakened considerably as a result of this latest round of concern over China’s economic slowdown. Lower commodity prices have caused investors to push back the timing of interest rate increases in the US as inflation and global growth expectations have reduced.
"Irish defined benefit pension schemes will most likely have seen a decrease in their funding positions in August due to negative asset returns — however, schemes should still have seen an increase in their funding position over the year to date," continued Lyons.
LCP Ireland, said in a commentary: "In summary, global equity markets have fallen by 7.9% in August but have still increased by 5.0% so far in 2015.
Bond markets also decreased over the month with long-dated Eurozone government bond prices down 3.0% by month end.
The funding level of a sample DB scheme decreased as assets fell more than liabilities, with the majority of asset classes falling in August.
All our sample DC strategies had negative returns for the month, and those with a high exposure to equities being impacted the most."