Releasing early reports of their 2019 investment returns, Icelandic pension funds Frjálsi and Almenni both point to last year’s depreciation of the krona against the dollar as a factor giving an extra fillip to the funds’ growing foreign portfolios.

Frjálsi announced its highest-returning pension investment option – Frjálsi Risk – produced a 13.7% real return in 2019, while Almenni reported its Portfolio 1 option returned 14.5% in the year.

Frjálsi said its Frjálsi 1 option, by far its largest sub-fund, ended the year with a 12.4% return, which was the highest the fund had generated since 2003.

The year had been an “eventful” one in financial markets, it said, with foreign equities being the strongest performing asset group.

“Despite news in international affairs such as the US-China trade war and the UK’s exit from the European Union, the global stock index returned 25.2% in US dollar terms, which translates to 30.2% in Icelandic krona due to the weakening of the krona,” the pension fund said.

Almenni said the MSCI Global Equity Index rose by 32.9% in Icelandic krónur terms, with the Icelandic unit having depreciated by 4.1% against the US dollar during the year.

“There were also good returns on the domestic stock market, with the total index of the main list rising by 27.8% during the year,” the fund said, adding that on average over the last 10 years the domestic equities index had risen by 13.6% per year.

The return on the domestic bond market was also very good in 2019, Frjálsi said, citing falling real interest rates and a drop in the inflation premium as the main drivers.

Icelandic pension funds have been in the process of increasing their allocations to foreign assets in the last few years, particularly since the capital controls – which were imposed after the 2008 economic collapse – were lifted in 2017.

The funds held an average of 28% of their total assets in foreign investments at the end of 2018, and were targeting a 31% allocation for 2019, according to the figures released last year from the Icelandic FSA, which has since merged with the Iceland central bank.

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