Spanish occupational pension funds bounced back to return 2.18% for the 12 months to 31 March 2019, recovering all losses incurred in the latter part of 2018, according to the country’s Investment and Pension Fund Association (Inverco).

The return compared with a 3.2% loss for calendar 2018, and a positive 0.5% for the 12 months to 31 March 2018.

The first-quarter figures brought the average annualised returns for Spanish occupational funds to 2.7% for the three years to end-March 2019, and 3% for the five-year period.

Xavier Bellavista, principal at Mercer, said: “Most fixed income assets enjoyed exceptional returns in Q1 2019. Yields relaxed as expectations of further interest rate hikes by the central banks diminished, and allowed fixed income assets to enjoy additional capital appreciation.”

Separate figures from Mercer’s Pension Investment Performance Service (PIPS) showed that the median pension fund return for the first quarter was 3.9%. The PIPS survey covered a large sample of pension funds, most of them occupational schemes.

Bellavista said: “Euro-zone government paper made the lowest return, but even this was [up by] 1% in just three months, while euro-zone corporates got returns in the area of 2%. Non-euro-zone assets, especially those in US dollars, benefited from the dollar’s appreciation, so their returns were in the area of 3% for government bonds and 5% for corporates.”

Higher risk fixed income assets in high yield and emerging markets gained 8-10% in just three months, he added.

Meanwhile, Bellavista said, the most popular alternative assets among Spanish corporate pension funds – hedge funds, commodities, real estate and private equity – also contributed positively during the quarter.

Allocation changes

Inverco’s figures showed that, for Spanish pension funds as a whole, the average fixed income allocation fell slightly to 47.6% of portfolios, while equities rose to 35.3%, as at end-March 2019.

The allocation to Spanish government bonds continued to fall, but at 22.5% of pension fund portfolios it was still the biggest single component, with a further 14.7% in domestic corporate bonds. The average allocation to domestic securities at end-March 2019 remained stable at 53.8% of portfolios on average.

The allocation to non-domestic equities reached 22.2%.

According to the PIPS survey of pension funds, the total fixed income allocation was 53%, split between 37% in euro assets and 16% non-euro assets. Equity assets remained stable at around 35%, with an almost 50-50 split between euro and non-euro assets.

Around 12% of total assets was allocated to real estate, hedge funds, private equity and cash.

“Both equity and fixed income European assets are making lower returns than non-European assets at present,” said Bellavista. “Those funds with more diversification and a lower percentage of assets invested in Europe are getting better results.”

Inverco said that, at the end of March, total assets under management for the Spanish occupational pensions sector stood at €34.8bn, a fall of 1.1% over the past year. The number of participants in the occupational system remained static at just under 2m.

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