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Big market swings 'here to stay', warns Finland's Veritas

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Finland’s Veritas has reported a weakening in investment returns over the third quarter and said the very strong fluctuations seen in markets over the last year were indicative of a permanent shift in the way the markets behave.

The pensions insurance company said it made a 2.4% total return on investments between January and September, compared with 5.6% in the same period last year, according to provisional interim figures.

Equities produced 5.3% compared with 8%, and fixed income investments made a loss of 0.5%, compared with a 4.9% profit.

Veritas described the overall return as “decent” despite turbulent market conditions, and said the third quarter had been challenging in investment markets, with returns declining in those three months.

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Investment director Nina Bergring said: “Over the past year, we have experienced several very strong fluctuations in the market, which affected many asset classes simultaneously.”

She said all of these swings had been branded historically large and rapid, and predicted that strong market movements were here to stay.

“The fluctuations are due to the fact the market’s microstructure has fundamentally changed with increasing digitisation,” she added.

“More and more players have started to use the same kind of algorithms for risk management and investment strategies, which makes it all the more necessary to make quick changes to the risk exposure simultaneously.”

She said this behaviour had created a snowball effect, and that stronger and faster market movements had presented long-term investors with new challenges.

“We have to concentrate even more on following the real economy and analysing our investment targets carefully,” Bergring said.

Veritas’s solvency capital fell to €580.9m at the end of September, from €609m at the same point last year, and to 27.3% of technical provisions from 30.1%.

Premium income rose to €359.6m from €347.7m, while total investment assets increased to €2.67bn from €2.58bn.

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