Financial market turmoil challenge returns in Q1
After a 2017 with good returns, the start to 2018 has been more unsettled. However, the outlook for the year as a whole remains positive.
Declines in the bond and equity markets and threats of a trade war have meant that the financial markets have been challenged, which has also impacted customers’ returns at PFA.
“After a strong start to the year in January, when both shares and interest rates rose, anxieties about further interest rate rises and slower economic growth took over. The equity markets in particular have been facing challenges. So, even though the global economy is growing, the financial markets are concerned that we are near the top of the bull market which has been growing since 2013. At the same time, the tensions between the USA and China in particular are causing nervousness, because both countries are important for global economic growth,” says Anders Damgaard, Group CFO at PFA.
Increased exposure to alternative investments continues
A long run with high returns, in particular with equity markets at high levels, has meant that PFA has been keen to diversify its investments more to reduce the risk within the overall portfolio. This has led to PFA increasing its investments in recent years in unlisted assets which provide more stable returns. This includes historically large one-off investments in Nykredit, Dansk Skibskredit and the Walney Extension wind farm, and PFA is also taking steps to increase its property investments in, for example, the USA and China.
“Our increased focus on unlisted assets such as alternatives and property with stable returns has been an advantage in a market like that we’ve seen in Q1. We’re also continuing to hedge the US dollar to a high degree, which has proved to a very useful approach, as the dollar has fallen by 2.3 per cent since the beginning of the year. A proper allocation with an overweight in emerging markets and Danish shares has also helped us limit the negative developments on the financial markets for customers in Q1,” says Anders Damgaard.
Negative returns for customers in market rate plans in Q1
For customers who are saving up using market rate products, the turmoil in the financial markets has meant returns of -0.7 per cent and -2.4 per cent depending on their investment risk profile in Q1. The total return related to market rate products was -1.6 per cent. This follows on from 2017, which produced a total return of 13.5 per cent.
“It’s never nice having negative returns, but if you save using market rate products, there will inevitably be periods with negative developments on the financial markets, and this will impact returns in the period in question. We are, of course, addressing this as an active investor, and we’re closely following the financial markets and doing everything we can to ensure customers the best possible pension savings by minimising losses in those periods where it’s necessary. At the same time, we’ve decided on a long-term investment strategy that takes account of the fact that markets go up and down, just as customers’ savings profiles are organised in such a way that the level of risk falls the closer they are to retirement,” says Anders Damgaard.
To stay focused on the fact that building up pension savings is a long-term exercise, it is necessary to look at the return over a five-year term, where PFA’s customers with medium risk and with 20 years to retirement have received returns of 52.4 per cent. This is a level which is almost second-to-none in the industry. At the same time, at PFA the outlook for returns for 2018 remains positive for the year as a whole, although not at the same level as last year.
The deposit interest rate for customers with average interest rate products is 2.0 per cent per annum, and including the expected return from Individual CustomerCapital of 10 per cent, it corresponds to a total return on the deposit of up to 2.4 per cent before tax. The return on investments related to average interest rate products was -0.2 per cent in Q1.
The returns at PFA Invest have also been influenced by the market turmoil, but despite this, PFA Invest continues to score top marks among Danish mutual funds from the independent investment research firm Morningstar. PFA Invest has a total score of 4.29 out of 5 stars, which no other Danish mutual fund can match.
Return on investment per asset group in PFA Pension, Q1 2018
|Listed shares||-2.9 %|
|Alternative investments||1.3 %|
Return in PFA Plus, Q1 2018
|Years to ritirement||30||15||5||-5|
- high risk
- low risk
- very low risk
*The returns include 5 per cent in Individual CustomerCapital and a return on Individual CustomerCapital of 10 per cent per annum.
Returns in PFA Invest, Q1 2018
|PFA Invest Balance AA||-1.0 %|
|PFA Invest Balance A||-1.9 %|
|PFA Invest Balance B||-3.0 %|
|PFA Invest Balance C||-3.9 %|
|PFA Invest Balance Akk||-2.3 %|
Kristian Lund Pedersen, Chief Press Officer, +45 39 17 58 79 / email@example.com.