Recent weeks have been difficult for investors and Irish pension funds, as the sovereign debt crisis in the Eurozone region has weighed heavily on stock markets. European equities fell over 5% during the month, whilst the ISEQ index was down -13.1%. These are sobering numbers, especially considering that it was in early May that the EU announced the mammoth €750bn support package.  Pension fund returns fell 3% in the month.

Mercer Pension Consultants said global equities were also weak (with some mixed economic data from the US weighing on recovery expectations), although Emerging Market economies have been performing relatively well, which does bolster the outlook for the global economy. However, Emerging Market equities were knocked back somewhat by political tensions in Korea. Bond markets have also been very volatile, with contrasting performance between ‘core’ and ‘peripheral’ Eurozone bonds. In these difficult conditions, the average Managed Fund fell 3% during May. However, more cautiously positioned de-risked funds (which tend to have more invested in liability-focussed bonds) generally came through the month with flat or even slightly positive performance.

“In these difficult conditions, it is important to note that steps taken by many clients have been helpful in reducing the impact of such an environment,” commented Noel Collins, senior Investment Consultant at Mercer. "De-risking into bond portfolios has clearly offered protection, but within this, the construction of bond portfolios which are liability focussed and invested in highly rated Government stocks has been of paramount importance. Similarly, diversification of equity portfolios (away from over-concentration on small concentrated markets such as Ireland) to wider global portfolios with exposure to the strong economies in Emerging regions will have helped give some downside protection. Given the uncertain nature of the investment world for the foreseeable future, we strongly urge clients to continue taking such steps to protect and position their portfolios for such conditions,” added Collins.

Pension consultants Hewitt Associates today released the monthly investment performance figures for the month of May 2010.

"Pension funds suffered from the turbulence in the global markets this month," commented Evelyn Ryder, Director of Investment Consulting at Hewitt Associates. "Global equities declined by 2.13% over the month, while Eurozone equities fell by 5.61%. This decline pared back some of the significant gains made in equity markets year to date. Equity markets with the exception of Euro equities are still posting high single digit or double digit returns year to date despite equity markets retreating this month."

"Investors are unsure what to make of the response to the problems in the peripheral Eurozone countries," Ryder said. "This has led to significant volatility in markets, with the VIX, known as the fear index, hitting its highest point since March 2009 during the month." The Euro has also suffered as investors question the viability of the currency longer term. The weakness in the Euro since the start of the year has been a positive for returns from non-Eurozone countries.

Bond markets remained volatile as concerns about the Euro stability grew. Eurozone bond funds grew by 1.92% over the month as investors fled back to the safety of bond markets as equity markets fell. German and French bond yields have fallen significantly as investors seek to reduce their exposure to riskier debt and the Euro peripheral countries. "Bonds yields continued to decline during the month and longer dated bonds are now down by close to 0.5% over the last 2 months which will substantially increase the liabilities of Defined Benefit pension plans coupled with falling equity markets will see many pension funds fall back into severe funding difficulties. " added Evelyn Ryder.

For the year to date, global equities have returned 9.24%, Eurozone bonds have returned 4.28% and the Hewitt Managed Fund Index has returned 4.4%. The Hewitt Managed Fund Index, an indicator of the performance of traditional Irish Pension Managed funds, fell by 2.8% in May.

Hewitt Associates will issue their full Multi Asset Fund Survey for May 2010 on Wednesday June 2, 2010.