Irish Economy
Irish pension managed funds delivered strong returns in November
By Michael Hennigan, Finfacts founder and editor
Dec 4, 2014 - 1:36 AM

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Irish pension managed funds delivered strong returns during November, with a mean gain of 2.6% for the month.

Friends First/F&C took top spot with a return of 4.0% for the month, while New Ireland propped up the league table with a return of 1.2%. Managed funds have returned 14.1% on average over the first eleven months of 2014. Friends First/F&C delivered the strongest return over the year to date at 15.6%, while New Ireland produced the weakest return, returning 10.4% over the same period. Over the past twelve months, the average fund return was 14.8%. Returns for the year ranged from 16.0% (Friends First/F&C) to 10.5% (New Ireland).

Fiona Daly, managing director, Rubicon Investment Consultants, commented: "The average managed fund return has been a very strong 16.3% per annum over the past three years. The five-year average return is a healthy 11.4% 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 2.4% in November. This has contributed to the index delivering a positive return of 15.5% since the beginning of the year.

Global equity markets rose in November, as investors reacted to the People's Bank of China's interest rate cut and overall economic data was positive. The FTSE All World Index increased +2.2% in euro terms over the month. A notable market move at the end of the month was the sharp slump in oil prices, down 18% in dollar terms for the month, as OPEC, the international oil cartel, announced that they would not cut output to prop up oil prices. The strongest performing equity index over the month was the ISEQ Index which returned +6.5% in euro terms. The weakest performing region in October was the FTSE Pacific Basin ex Japan, -2.7% in euro terms over the month. In Europe, the main news was ECB president Mario Draghi’s heavy hints at further monetary easing policies in the coming months, which boosted the equity markets. German inflation fell to a low of 0.5%, from 0.7%, implying that the ECB will have to work hard to get inflation back to its target of 2%.

"Stock Markets were strong in most regions for the month of November continuing the positive run shown over the year so far with the FTSE All World Index returning 18.6% year to date," commented Evelyn Ryder, investment director at Aon Hewitt.

Core Eurozone government bonds increased again in November. The German 10 year bund yield decreased by 10 bps to 0.70%, while the French 10 year bond yield decreased by 27 bps to 0.97%. Peripheral Eurozone bond yields also decreased over the month of November with the Irish 10 year bond yield falling 38bps (basis points or 0.38%) to 1.37%.

"Similarly to October, Irish Defined Benefit pension schemes will have seen the valuation of their liabilities increase again in November given the continued decrease in core Eurozone government bond yields. This increase in liabilities will have largely offset asset gains for the month. Year to date most Irish Defined Benefit pension schemes will likely have experienced a 15-20% increase in their long term liabilities. For funding levels to remain stable schemes would either have had to a high exposure to equity or a significant exposure to long dated bonds," continued Ms. Ryder.

"Despite strong asset gains year to date we do expect that many pension schemes with current Funding Proposals in place, particularly those with a year-end statutory deadline, will likely be stretched to keep the funding proposals 'on track' for the remainder of the Funding Proposal period. This is due to the continued falling Eurozone Government bond yields, and associated rising annuity costs increasing the liabilities for pensioners and older active and deferred members significantly and assets struggling to keep pace."

LCP Ireland, which says it won the 'Pension Consultancy of the Year', for the second year running, at last week's Irish Pensions Award 2014. commented in a report: "In summary, global equity markets continued their strong run, up 2.3% in Euro terms over the month.

Long-dated AAA Eurozone Government bonds increased again with yields in many Eurozone countries now at record lows.

The funding level of a typical DB scheme increased by approximately 0.7%, as assets rose more than liabilities over the month.

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

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