Latvia’s mandatory second-pillar funds generated a 12-month weighted average return of 3.83% in March, according to the Association of Commercial Banks of Latvia (LKA).

A year earlier, all three classes of funds lost money, with the riskier plans suffering the most. In the most recent 12-month period, investments in riskier assets yielded the best results.

This March the average return from the eight active, equity-weighted funds strengthened from to 5.17%, compared with a loss of 4.05% a year earlier.

The four balanced funds gained 3.28% on average, compared to a loss of 3.17% in the previous year. The eight conservative funds edged up their average return from -0.64% last year to 0.72%.

The returns helped assets grow by 20.6% to €2.9bn, of which €2.4bn came from contributions, and €484m from net investment growth.

Funds cut their average weighting to domestic assets from 43% to 30%. Allocations to eastern European assets grew by 3 percentage points to 24%, and by a similar amount in western European assets, to 16%.

The funds also increased their exposure to North America, from 5% to 9%.

The active funds capitalised on the stock market bull run, increasing their equity exposure from 26% to 32%. Bond allocation rose from 48% to 56%.

The shifts came at the expense of term deposits, because of historically low interest rates, and cash holdings.

The balanced funds maintained their equity exposure at 17%, raised their bond allocation from 70% to 74%, and likewise lowered their deposit and cash investments, while the conservative funds’ bond allocation rose by 7 percentage points to 84%.

Returns from the 17 private, third-pillar funds showed a similar trend, with the average gain reaching 5.76%, compared with a loss of 3.27% the year before.

The highest returns were generated by the nine euro- and two dollar-denominated active funds, with average gains of 9.03% and 6.26% respectively.

The third-pillar sector remains underdeveloped, with some 275,770 participants, of whom only 55,855 – 6% of the employed workforce – benefit from employer contributions.

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