PFA: COVID-19 made its mark on our returns in the first quarter
After a good start to 2020, the spread of the COVID-19 virus brought an abrupt end to the positive yield development in the first quarter. A careful approach to the market development has mitigated falls for PFA customers.
The COVID-19 virus’ global spread has affected financial markets negatively in the first three months of the year. It is also affecting PFA’s returns, which, after the first quarter of 2020, total DKK -33.0 billion. This follows the historically good returns of 2019, when the returns were DKK 57.6 billion.
‘The year started well, when we saw the positive momentum and high returns from last year continue into 2020. However, from mid-February, things began to turn, as the consequences of the COVID-19 pandemic began to make their mark on the financial markets. And when the virus appeared outside China in earnest, and Denmark, along with many other countries, shut down our society, the big falls quickly followed. This means that we have come out of the first quarter with a negative return,’ says Kasper Lorenzen, Group Chief Investment Officer, PFA.
Since the end of Q1, the return has already somewhat recovered which implies that approximately half of the losses for the quarter has been recovered concurrently with the improving financial markets.
When there is great turmoil in the financial markets, the more risky assets, e.g. listed shares, see the greatest decrease in value. Consequently, the first quarter saw a negative return of -17.7 per cent. By contrast, PFA’s large share of unlisted investments demonstrated its strength during the market turmoil, as PFA’s significant property portfolio had a return for the first quarter of -1.6 per cent, while the return on the portfolio of alternative investments was -10.8 per cent.
‘At PFA, we have been working for years to create a broad and robust portfolio in order to ensure solid long-term returns for our customers. This also applies in times such as those which we have just been through, where financial markets are in the red. At these times, the goal is to minimise losses, and that is where i.a. our many investments in the unlisted area, e.g. in properties and offshore wind farms, show their strength, as they are more robust, and largely guarantee a fixed, regular income, even though financial markets are declining,’ Kasper Lorenzen says.
Cautious approach has mitigated declines in financial markets
For the first quarter, the total return related to PFA Plus was -10.5 per cent. This means that PFA’s customers holding market rate products have seen negative returns of between -4.1 per cent and -15.1 per cent, depending on their selected investment profile.
For a typical customer with savings in PFA Plus profile C and 20 years until retirement, this means that the total return for the first quarter of 2020 was -12.0 per cent. In this context, it is important to also look at returns in the longer term, as pension savings are long-term and will inevitably go through periods of negative returns. Over the past five years, the return for a customer with this profile has been 14.5 per cent.
‘It is never pleasant to see the value of your savings diminish in the short term, but at the same time, we must remember that this setback comes on the back of a great period, when PFA Plus customers saw returns of up to 19.0 per cent last year alone. Meanwhile, the return comparisons between pension companies show that PFA comes out as one of the companies that has weathered the financial storm the best this year. Among other things, this is due to us having a greater equity share in the more defensive sectors, while we also have many unlisted investments,’ Kasper Lorenzen says.
The return related to average-rate products was just -0.7 per cent in the first quarter of the year due to the fact that the portfolio has been hedged against interest rate declines and has virtually no strategic exposure to the equity market.
PFA launches new climate-focused pension solution
Despite the COVID-19 virus attracting a lot of attention in recent months, work is continuing to develop PFA Climate Plus, which from the summer will allow PFA customers to save for retirement through specially selected, climate-focused investments.
In PFA Climate Plus, across all asset classes there is a targeted selection of companies and projects which actively work to reduce the world’s CO2 emissions. Initially, this portfolio will produce 60 per cent less CO2 than the world equity index, and the product must be CO2-neutral by 2025 at the latest.
‘Over the past months, the green agenda and the large focus on sustainability of recent years have been pushed into the background. For PFA, it has been very important to maintain this focus and, among other things, ensure that the situation surrounding COVID-19 does not delay the work to complete the development of PFA Climate Plus, which is going ahead as planned,’ Kasper Lorenzen says.
PFA Climate Plus becomes part of the existing market rate product universe that the customers already know from PFA Plus, with four different risk profiles and automatic gradual reduction of risk as retirement approaches.
Investment return Q1 2020 - broken down by asset class
|Asset class||Q1 2020|
|Listed equities||-17.7 %|
|Alternative investments||-10.8 %|
PFA Plus returns, Q1 2020
|Years until retirement||30||15||5||-5|
Profile D - high risk
|-15.1 %||-15.1 %||-8.9 %||-7.8 %|
Profile C - moderate risk
|-12.0 %||-12.0 %||-7.6 %||-6.5 %|
Profile B - low risk
|-9.0 %||-9.0 %||-6.1 %||-5.3 %|
Profile A - very low risk
|-5.9 %||-5.9 %||-4.7 %||-4.1 %|
The return includes 5 % Individual CustomerCapital and a return on Individual CustomerCapital of 8 % per year.
PFA Invest returns, Q1 2020
|PFA Invest Balance AA||-5.5 %|
|PFA Invest Balance A||-8.6 %|
|PFA Invest Balance B||-12.8 %|
|PFA Invest Balance C||-15.0 %|
|PFA Invest Balance AKK||-10.9 %|
Kristian Lund Pedersen, Chief Press Officer, (+45) 39 17 58 79 or email@example.com