Spanish pension funds with a greater exposure to equities made positive returns at the end of the second quarter of 2018 despite increased volatility in financial markets, according to the country’s Investment and Pension Fund Association (Inverco).

Occupational pension funds returned an average 1.11% for the 12 months to end-June 2018, compared with a 0.5% return for the 12 months to end-March 2018.

The second quarter results bring the average annualised returns for Spanish occupational funds to 1.78% for the three years to 30 June 2018, and 4.21% for the five years to that date.

“Fixed income has been the lagging asset class in terms of returns in the last few months, said Ricardo Pulido, executive director, investment, Aon.

“Inflation and interest rate hikes have subtracted from fund performance, while equities and alternative assets have added positive performance to funds.”

According to Pulido, investors were currently looking how to reposition their pension funds to avoid the drag in performance.

“Positions in core European bonds are not an option, while peripheral bonds offer relative yield but with political risks,” he said. “Loans and variable interest bonds seem the most attractive option looking forward.”

Figures from Mercer’s Pension Investment Performance Service (PIPS) show that funds made a negative return of 1.4% for the first quarter of 2018.

The PIPS survey covered a large sample of pension funds, most of them occupational schemes.

Since the first quarter, mainly driven by non-eurozone equities, pension funds had recovered most of their negative performance; the return for the year to 30 June 2018 was -0.5%, according to PIPS.

Non-eurozone equities returned 1.0%, with negative returns for eurozone equities and both euro and non-euro fixed income.

The best performance came from real estate, which returned 1.1%.

Inverco’s figures showed that for Spanish pension funds as a whole, the fixed income component remained steady at 47.3% of portfolios, while equities rose slightly, to a 35.5% allocation. Spanish government bonds still made up the biggest single component of pension fund portfolios at 23.9%, with a further 13.5% in domestic corporate bonds.

Pulido observed: “Multi-credit, which invests in different fixed income sub-asset classes, has become another of the most favoured asset classes, allowing portfolios to achieve higher diversification levels and therefore increasing efficiency ratios over time, rather than investing in a unique asset class such as high yield debt.”

Meanwhile, the average allocation to domestic securities continued to decline, forming 52.6% of portfolios at end-June.

Conversely, non-domestic holdings continued to rise, to 32.2% at the same date. Cash holdings had declined slightly, to 7.7%.

According to PIPS, over one-third – 36.9% – of Spanish occupational pension fund portfolios was invested in eurozone fixed income, with 13.6% in non-eurozone fixed income, at 30 June 2018. 

Eurozone equities made up 18.2%, and non-eurozone equities 19.0%, of portfolios at that date. Investments in alternatives formed 3.8% of portfolios and real estate 2.5%, with 6% in cash.

Inverco said that at the end of June, total assets under management for the Spanish occupational pensions sector stood at €35.2bn, a reduction of 1% over the past year. The number of participants in the occupational system was stable, at just over 2m.

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