Top return to PFA’s customers in 2015

PFA’s market rate customers ended 2015 with a comfortable return on their pension savings. The strong result was generated after a year that first saw international investment markets taking a strong surge upwards and then a swoop downwards, which caused sweaty palms for most investors.

On the other hand, PFA customers can keep calm as the year ended with a return between 5.3 and 12.3 per cent to customers with a market rate plan in PFA Plus*, Anders Damgaard, PFA’s Group CFO explains.

“In spite of the turbulent financial markets, we ended 2015 with strong returns to our customers. The exceptional difference in share performances meant that our ability to select the right companies was paramount. And, balancing the shares the way we do proved profitable, which is why our investments - and thus the customers’ returns – performed better than the market in general. For instance, our shares in foreign companies performed seven per cent better than average,” Anders Damgaard says.

The handsome returns rank PFA in the top among the Danish pension companies. This is evident from PFA’s own figures and from calculations made by experts on behalf of the two Danish dailies Jyllands-Posten and Berlingske Tidende.

The return on shares came out best

PFA’s investments in Danish and foreign shares represent 60 per cent of the return that PFA’s customers have received. Unlisted investments, properties and foreign currency represent the remaining 40 per cent, whereas bond investments did not generate any return in 2015. However, bonds did play an important role as a stabilising factor throughout the year.

Pension savings require good and stable returns over many years and resemble a full marathon rather than an 800-meter sprint. Even so, the gain from handsome returns from one year to another is considerable, just like a quick one-kilometre run during a marathon will impact the overall marathon result.

“Pension is a long-term investment, however, a year with as fine returns as the ones we saw last year means a lot to your savings plan in the long term. Especially, if you are still young and won’t be facing retirement in the foreseeable future. In this case, the handsome return will accrue even more interest the coming years – also called the compound interest effect,” Anders Damgaard says.

Active management to secure future returns

He adds that as a pension company it is possible to benefit from both long-term and short-term investments in order to optimise the total long-term return. Over periods of five years, PFA aims at being the number one pension company in Denmark when it comes to market rate returns. At the same time, the investment risks that are undertaken along the way must be closely monitored. This is a special focal point during the next years when we are expecting the markets to be rather uncertain.

“It is likely that the investment markets will experience heavy fluctuations during the coming years. For this reason, we have turned down the risk at the beginning of 2016. It is now we need to show the real strength of our active investment management. If you invest passively, you can only expect to receive a low or, at the most, a moderate return. If you exercise strong risk management and balance your investments on a regular basis among the various asset types while selecting the proper underlying companies and bonds, you can achieve a better result. This is what we spend a lot of our time and energy focusing on – in order to make a success,” Anders Damgaard concludes.

2016 started out with slumping share markets, however, the Group CFO expects the markets to turn around, and anticipates that PFA’s customers will come out of the year with decent returns; though somewhat lower than in 2015.

Facts:

Here is what contributed to your return in 2015 – breakdown of PFA’s return on investments:

• Danish shares accounted for 1/3 of PFA’s return in 2015
• Foreign shares accounted for 1/4
• Unlisted investments and properties accounted for 1/3
• The remaining part of the return is mainly due to PFA’s currency hedging strategy
• Bonds did not generate any return, but stabilised the return during the year.

More investment market details

• If the interest rate levels remain unchanged, Anders Damgaard expects the 2016 returns to end up between 2 and 7 per cent in PFA Plus depending on risk profile.
• Especially the financial unrest in China and on the emerging markets makes it difficult to generate returns to all investors in future.
• Even though we foresee lower returns in the years to come, we need to keep the low Danish inflation (2015: 0.5 per cent) in mind. This means that even modest returns will be sufficient to improve the purchasing power.