Irish Economy
Irish pension managed funds had mixed performance in October
By Michael Hennigan, Finfacts founder and editor
Nov 7, 2014 - 10:24 AM

Irish pension managed funds delivered a mixture of positive and negative returns during October, with a mean gain of 0.5% for the month.

Setanta Asset Management took top spot with a return of 1.7% for the month, while Friends First/F&C propped up the league table with a return of -0.9%. Managed funds have returned 11.2% on average over the first ten months of 2014. Setanta Asset Management delivered the strongest return over the year to date at 12.3%, while New Ireland produced the weakest return, returning 9.1% over the same period. Over the past twelve months, the average fund return was 13.4%.

Returns for the year ranged from 15.2% (Davy Asset Management, formerly Advance Investment Managers) to 10.6% (New Ireland).

Fiona Daly, managing director, Rubicon Investment Consulting, commented: "The average managed fund return has been a very strong 15.0% 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 5.9% per annum on average."

The Aon Hewitt Managed Fund Index, an index representing the performance of traditional Irish pension managed funds, increased by 0.51% in October. This has contributed to the index delivering a positive return of 12.06% since the beginning of the year.

Global equity markets rose in October, extending recent gains as economic data was broadly positive, with the FTSE World Index increasing +1.5% in euro terms. The strongest performing region over the month was the FTSE Pacific Basin ex Japan which returned +3.2% in euro terms. Japan surprised markets at the end of the month with the Bank of Japan increasing its quantitative easing programme and the country's large public pension fund announcing an increase in its equity exposure. The weakest performing region in October was the Eurozone, -2.5% in euro terms over the month. Weak data continues to come out of the Eurozone and Germany in particular. UK delivered negative returns (-1.4%) in euro terms following the third consecutive month of lower mortgage approvals and indications that the housing market is indeed cooling.

"Stock market volatility picked up sharply in October with equities suffering -10% declines in the first two weeks of the month before recovering strongly into month-end," commented Brian Delaney, senior investment consultant with Aon Hewitt. "Investor confidence is running high and, while stock market valuations are expensive, fund managers are confident of, and positioned for, a strong run in equities for the remainder of 2014. There appears to be limited concern for any material correction in stocks at the current time".

Core Eurozone government bonds increased over October. The German 10 year Bund yield decreased by 15 bps to 0.80%, while the French 10 year bond yield decreased by 5 bps to 1.24%. By contrast, peripheral Eurozone bond yields increased over the month of October with the Irish 10 year bond yield increasing 10bps to 1.75% while the Portuguese 10 year bond yield gained 18 bps to 3.34%. The Spanish 10 year bond yield was flat over the month.

"Irish Defined Benefit pension schemes will have seen the valuation of their liabilities increase in October given the decrease in core Eurozone government bond yields. This will have largely offset asset gains for the month. Liability increases may have been mitigated for some Schemes by falling Eurozone break-even inflation rates," added Delaney.

LCP Ireland said in a commentary: "In summary, global equity markets were extremely volatile in October, falling sharply mid-month but then recovering strongly by month end.

Long-dated AAA Eurozone bond yields fell to record levels, leaving bonds at very expensive levels.

The funding level of a typical DB scheme increased by approximately 0.3%, as assets rose more than liabilities.

All of our sample DC schemes rose in October as most asset classes had positive returns."