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Portuguese funds set to return 7.5% this year

PORTUGAL – Portuguese pension funds are expected to close the year with a 7.5% return compared with eight percent last year, according to Watson Wyatt.

This year’s annual average returns are likely to be lower than last year unless stock markets go up, said investment consultant Carlos Ravara.

But in its September market outlook, Watson Wyatt also said that pension funds have returned an average 4.6% in the first nine months of 2004 and the month had started on a positive note with a 0.9% return.

As investors retuned from their holidays “as willing buyers”, the growth this September interrupted a sequence of five consecutive negative Septembers.

Portuguese equities had the highest growth of any Portuguese asset class in September - 3.5%. Their average return in the first nine months amounts to 10.2%,

European equities, excluding Portugal, with a 2.2% return is the second highest yielding class - its average return in the first nine months is stable at 2.2%.

The most popular asset class, with an average allocation that at the end of June amounted to 26.1% is euro public debt, but it has returned 0.4% in September. This compares to the 3.5% returned by Portuguese equities.

Portuguese funds invest 15.2% of their portfolio in European floating rate bonds, an investments which in September has only yielded 0.2%.

European floating rate bonds are popular because they are seen as ‘safe-haven’ in time of market stress, Ravara explained, but added this asset class could be chosen less in the future, as “on the strategic point of view it does not make much sense”.

Alternative investments like funds of hedge funds, on the other hand will “definitely” increase, he suggested. This class has the second lowest asset allocation, 1.9%. But it has shown returns of 2.6% in the first nine months and is expected to yield 5.3% at the end of the year.

According to Watson Wyatt’s figures, in September alone funds of hedge funds returned 0.1% more than real estate, the fourth most popular asset class among pension funds with an average allocation of 12.2%.

Property investments have also returned the fourth lowest rate, 0.4%, in September, while its average return for the first nine months amounts to 5.1%.

International bonds, the asset class with the lowest average asset allocation, 1.6%, has made a loss of 1.5% but its combined return for the first nine months is of 2.4%.

International equities have also made a loss in September of 0.7% but the asset class is estimated to have returned 1.4% in the first nine months of the year.

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