Strong returns in Q1 reward risk taking

The first quarter of 2017 involved a turbulent start to Donald Trump's presidency, an election in the Netherlands and global economic growth. But not least, strong returns for PFA Pension’s customers.

PFA Pension generated a total return of DKK 7.2 billion for its customers during Q1 2017. Customers with market rate products received solid returns of between 1.7 and 5.2 per cent (incl. CustomerCapital) – depending on risk profile and date of retirement. Anders Damgaard, Group CFO of PFA Pension, expresses satisfaction with the results.

“Pension customers with market rate products can be very happy with the return they have received during Q1. The biggest risk takers were rewarded with the biggest returns of up to 5.2 per cent in just 3 months, which definitely is a satisfactory start to the year”, Anders Damgaard says and continues:

“However, at the same time, it is important to keep in mind that pension savings should be seen in a long-term perspective, and therefore the long-term returns are crucial. For this reason, we are very happy that the Q1 results support our ambition to generate top returns seen over a 5-year period.”
Over the past 5 years, PFA Pension has generated a total return of 65 per cent (incl. CustomerCapital) for customers who have the recommended profile C and with 20 years until retirement.

Average interest rate - the deposit interest rate stays at 1.5 %

For customers with average interest rate savings, PFA Traditional, the current development on the financial markets does not have much impact on their pension savings with PFA Pension. They receive a steady deposit interest rate, which is fixed by PFA Pension based on the historical returns, the current level of interest and PFA Pension’s expectations of the average development on the financial markets now and in future. This way, the return is evened out over time, and therefore brief fluctuations on the financial markets do not directly affect the customers’ return.

At present, the deposit interest rate is 1.5 per cent, and, according to Anders Damgaard, PFA Pension sees no reason to adjust it in the near future.

“For customers with average interest rate products, the Q1 returns total between -0.6 and 0.2 per cent depending on the interest rate group. The low returns are especially caused by negative returns on bonds and the interest rate hedging due to rising interest rates. On the other hand, shares and credit bonds have made a positive contribution to the return. For now, it is our assessment that the return does not give rise to changing the deposit interest rate,” the Group CFO explains.

He further elaborates that, during good years, PFA Pension has regularly set aside money to ensure that, in spite of years with low or negative returns, there will always be sufficient funds to honour the agreements entered into with the customers.

“In recent years, the average interest rate environment has yielded high investment returns, and we have set aside reserves to accommodate years when the return inevitably will be under pressure because of the low level of interest. Therefore, customers can rest assured that they, as a minimum, will receive what is guaranteed in their pension plan," Anders Damgaard emphasises.

Economic growth despite political turmoil

Throughout Q1, the financial markets were marked by Donald Trump’s first 100 days in office and the changed political landscape in the US. In addition, the Netherlands had an election and Great Britain formally began the process of leaving the EU. However, the political instability has not dampened the global economic growth, which is carried forward by a geographically broad-based upswing.

“All in all, this resulted in a booming Q1 on the financial markets, which especially rewarded those with large amounts of high-risk assets such as shares. We are pleased to note that our share portfolios have performed well compared to the market. And we are also happy with our low-risk fund, which have yielded a positive return despite the bond market yielding negative returns in several places as a result of the rising interest rates,” Anders Damgaard says.

Closely monitored risk when placing the customers’ money

Even though the markets have performed very well from the beginning of the year, the investment team is not convinced that the risk has disappeared. And in near future, among other things, a French presidential election lurks with the potential to upset the global markets. Therefore, PFA is not about to place all its customers’ money in shares, the CFO explains.

“It is pivotal for us to look after our customers’ money and not take any unnecessary risks. In spite of the solid development on the share markets and in the global economy in recent months, we still see considerable political risks such as the French presidential election, and also both the bond and share market appear expensive in several places. We are watching the development closely and are focused on positioning our portfolio to ensure that it stays resistant to fluctuations,” Anders Damgaard says.

The first round of the French presidential election will be held on 23 April, and the second and conclusive round on 7 May.