Strong half-year extends golden period for PFA’s pension customers

PFA’s customers can go on their summer holidays with solid returns on their pension accounts. A typical customer in PFA’s profile with medium risk and 15 years to retirement has achieved a half-year return of 8.3 per cent. This continues the strong results from previous years, and the three-year return now stands at 40.3 per cent, while the ten-year return has passed 107 per cent. The returns are among the best in the commercial market both for the half-year and over three years.

The first months of the year have – just like last year – brought significant fluctuations in the global financial markets, primarily driven by the conflict in the Middle East, which has alternated between escalation and prospects of peace. At times this has sent oil prices sharply higher and reduced economic visibility. Nevertheless, both the global economy and companies have proved robust enough to withstand the shocks that have occurred, and this has had a positive spill-over effect on the equity markets, explains PFA’s Chief Investment Officer, Kasper Lorenzen.

“Just like last year, we have had a first half-year with large fluctuations in the equity markets, primarily driven by the conflict in the Middle East. But both the economy and companies have shown great robustness and strength, and this has helped lift returns. For a typical PFA customer with medium risk, the return was at one point down to minus 3.2 per cent, but the half-year has nevertheless ended with a positive return of 8.3 per cent, roughly in line with the return one typically gets over the course of a full year. It is yet another reminder that it pays to keep a cool head, and I am pleased that our customers now for the fourth year in a row appear to be heading into a new year with positive investment returns,” says Kasper Lorenzen.

The strong returns apply to both PFA’s broad product, PFA Plus, and the climate-focused product, PFA Climate Plus. Here, the half-year return for a typical customer with medium risk is 11.3 per cent, which is right at the top both generally and among comparable products in the industry. The good result is primarily due to a strong equity composition.

New profiles with greater equity focus benefit again
Part of the explanation for the good results is the new investment profiles with a greater equity focus that PFA launched last year. They were an advantage last year, and they have also been so this year, where not least the US and the US technology sector have again accounted for a large share of the return.

“Once again this year it has been an advantage to be solidly invested in the US and in particular in the US technology sector, which has continued to drive much of the return. That said, it is still something we monitor closely when so much market value is concentrated in a relatively small part of the market,” says Kasper Lorenzen.

He elaborates that the 10 largest technology companies currently make up more than 40 per cent of the US S&P 500 equity index.

Interest rates and inflation dominate in the run-up to the election
While equities have delivered a strong half-year, bonds have produced a modest positive return, weighed down by the still high interest rate level. The interest rate level, especially in the US, has been a recurring theme this year because it increases financing costs and puts pressure on the growing public debt. High inflation and low unemployment continue to make interest rate cuts difficult. On the other hand, the de-escalation in the Middle East and the reopening of the Strait of Hormuz, which have sent oil prices markedly lower, may over time provide greater scope for monetary policy. In any case, an exciting second half-year awaits for both the US economy and politics.

“After a half-year with a strong foreign policy focus, attention will probably turn more inwards in the US in the run-up to the election in November. Inflation and living costs will remain important themes, but unemployment is still low, and falling energy prices together with lower inflation may give US households a bit more breathing space in their personal finances. At the same time, we must expect that in the run-up to the election the government will do what it can to keep domestic economic activity going,” says Kasper Lorenzen.”