Since its launch in 1999, the Fonditel Red Básica pension fund has achieved remarkable returns on its investments, a record which has kept it permanently at the top of the performance rankings. For this consistency of performance, FRB has won the award for Best Spanish Pension Fund.

FRB is sponsored by the Telefonica Group, the leading telecoms operator for the Spanish and Portuguese-speaking world, with markets in Europe, Latin America and North Africa.

The group runs several employee pension schemes under the Fonditel banner. After several years of outstanding performance with these funds, it launched FRB as a pension fund offering plans to individuals, whether or not they were Telefonica employees. FRB now has over 4,100 active members, and nearly 500 retirees.

At present, the pension fund's portfolio is worth over €124m, invested 15% in equities and 85% in fixed income. This asset allocation places it in the RFMx (balanced fixed income) sector as defined by Inverco, the Spanish Association of Investment and Pension Funds. Funds in this sector are limited to a 30% equity allocation in their portfolios. FRB's asset allocation makes it the most conservative individual pension fund in the Fonditel stable, making its returns all the more remarkable.

The portfolio is modelled on a core/satellite philosophy. The biggest segment of the portfolio - the ‘core' side - is made up of investments that track the indices for both equities and bonds.

On the ‘satellite' side, the managers use multi-asset programmes with the aim of limiting the amount of capital employed, and which are designed to add value on uncorrelated assets.

For this purpose, the managers use all the financial tools which are available to them. The goal is to avoid systematic risk as much as possible.

One of the main ways in which FRB distinguishes itself from other pension funds is to use derivatives as the main tool to fix the asset allocation distribution. More than 80% of its total exposure to the equities market is made through index derivatives, such as futures and options. The remaining 20% is built from individual stocks or relative value positions, which represent the alpha value investments.

The fund says that while the performance of its portfolio has been excellent, the level of returns alone is worth nothing without the risk. It says that the purpose of risk management is to monitor the level of risk and identify possible sources. It regards risk as a scarce resource and believes that considering it as an input in the investment process is as important as placing limits on the acceptance of loss.

The fund's volatility is calculated on a daily basis and the managers make weekly adjustments to make sure the limits assigned to the fund are not breached. They consider it is possible to achieve a reasonable degree of control over the fund by following the VAR methodology.

The result of this investment philosophy has been returns which have made FRB the best-performing pension fund not only within the Telefonica Group, but out of all Spanish pension schemes, both individual and corporate.

On a yearly basis, it made 9.18% for the year to 30 June 2005, compared with an average of 6.34% for the PPI (the average for all Spanish individual pension plans) and 5.33% for the PPIRFMX (the average for all balanced fixed income individual pension plans). The following year, it again outperformed its sector, with a 5.88% return, compared with a 5.10% return for the PPI and 3.58% for the PPIRFMX. It then made a staggering 11.94% over the 12 months to 30 June this year, compared with 7.74% for the PPI and 5.51% for the PPIRFMX.

FRB's performance has been equally impressive over longer periods. Over the three years to 30 June 2007, the fund returned an average 7.64% per year, compared with 5.81% for the average PPI and 4.28% for the average PPIRFMX.

And for the five years to the same date, its average was only slightly less, at 7.63%, compared with 4.32% for PPI funds and 3.49% for PPIRFMX funds. It was the best-performing Spanish pension fund within its asset allocation category. Furthermore, FRB also outperformed its benchmark by an average of 5% over this time frame.

Fonditel is the only Spanish fund company with the standard ISO 9001:2000 certification. It also has the Management System Certificate from DNV.
The funds are also the only ones in the Spanish market which are both included in Mercer's pension investment performance survey of Spanish pension funds with annual and quarterly reports, and compliant with global investment performance standards (GIPS).

However, investment philosophy is not the full story. Effective communication and the provision of information at all levels is one of the lynchpins of any successful pension fund.

FRB has therefore established a system of regular information flows. Every month, the plan's board of trustees receive both a pension plan analysis report and a breakdown of the pension fund portfolio. On a quarterly basis, they see a returns analysis report.
At a wider level, members and beneficiaries are sent an operations report each quarter, while the pension fund's website ( is updated daily with new data. This flow of information enables every individual investor and retired member to see exactly how the fund is doing, and gives them the basis for making further decisions about their plan.

Although - with only 15% of its portfolio in equities - it has the most conservative asset allocation of all the individual pension funds in the Fonditel stable, FRB has achieved superlative performances, year after year. The portfolio is made up of a core of fixed income and equity index trackers, while a satellite of multi-asset programmes utilises uncorrelated assets to add value. The pension fund also uses derivatives as the main tool to fix the asset allocation distribution, while the overall goal is to avoid systematic risk. The result has been outstanding returns, making it the best-performing of all Spanish pension funds, with an average annual return of over 7.6% for the past five years, including nearly 12% for the year to 30 June 2007.