The spectacular recovery from COVID-induced market falls of March 2020 was reflected in the performance of Spanish corporate pension funds, which returned an average 13% for the 12 months to 31 March 2021, according to the country’s Investment and Pension Fund Association (Inverco).

The baseline of course was the market slump at end-March last year; for the 12 months to the end of December 2020, the gain had been 1.53%.

The results brought the average annualised returns for Spanish occupational funds to 3.38% for the three years to end-March 2021, and 3.23% for the five-year period to that date, said Inverco.

Xavier Bellavista, principal at Mercer, said: “The recovery from March 2020 was very rapid, especially in Q2 and Q4 2020, which delivered quarterly returns of 5.1% and 3.4% respectively. The first quarter return for 2021 was 2.0%, and for Q2, 1.9%.”

Those returns were recorded by Mercer’s Pension Investment Performance Service (PIPS), which covers a large sample of pension funds, most of them occupational schemes.

However, Bellavista said the high dispersion of performance between best- and worst-performing occupational funds seen in 2020 continued in Q1 2021, ranging from 5% to 20% recovery from the lowest points of March 2020, with funds more biased towards fixed income performing the worst.

“While some managers’ active decisions went wrong, others did well, so we cannot link fund underperformance specifically to management decisions”

Xavier Bellavista, principal at Mercer

He said: “Asset allocation was the main reason for the difference in performance. While some managers’ active decisions went wrong, others did well, so we cannot link fund underperformance specifically to management decisions.”

Bellavista said Q1 performance was driven mainly by equity investments.

“During the quarter, the performance of euro and non-euro equities in Spanish corporate pension funds was fairly similar,” he observed. “The recurring underperformance of European equities in the past flipped over this quarter, recovering part of the gap.”

He added: “Fixed income returns were negative in Q1 2021, but since Spanish corporate pension funds generally hold low durations, their performance was better than that of global fixed income indices.”

He also said that the devaluation of the euro versus the US dollar contributed positively to the performance in the quarter, since non-euro assets represent a significant part of corporate pension fund portfolios.

Domestic equities overtake govvies

Inverco’s figures showed that for pension funds as a whole, fixed income fell slightly over the first quarter of 2021 to 41% of portfolios. For the first time, equities have become the largest individual domestic asset class, forming 16.9% of portfolios, overtaking Spanish government bonds at 15.7%.

The largest asset class overall is non-domestic equities, rising to a 25.3% allocation.

At the end of March 2021, total assets under management for the Spanish occupational pensions sector stood at €36.2bn, an increase of 1.5% on the previous quarter.

The number of participants in the occupational system remained the same, at just under two million.

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