The appreciation of the euro against the US dollar stifled investment returns from Portuguese occupational pension funds in the second quarter of 2017, according to Willis Towers Watson.

Schemes generated a median return of 0.2% over the period. The average 12-month return to the end of June was 2.7%, compared with a 3.3% return for the 12 months to 31 March 2017. Annualised returns for the three years to 30 June rose to 3%, and reached 5.6% for the five-year period.

José Marques, senior investment consultant at Willis Towers Watson, said: “The key factor affecting the returns of all assets for euro-zone investors was the euro’s appreciation against the US dollar. Although global equities performed relatively well in local currency over Q2, the strengthening of the euro versus the US dollar resulted in poor returns, -2.4%, when measured in euros.”

However, in Portugal pension funds were largely invested in the euro-zone so the impact of the euro’s appreciation was only modest, he said.

He said: “Euro equities outperformed most other geographical equities over the quarter. European equities have performed extremely well this year, boosted by higher company earnings compared with analysts’ estimates, and the defeat of right-wing political parties in France and the Netherlands.”

Marques continued: “During the quarter, developed market equities [lost] 2.4% in euro terms, underperforming emerging market equities by 2.1%. Developed French and Italian equities returned the best performance from major regions – 2.3% and 2.2% respectively.”

The worst performer in euro terms was equities in developed Asia Pacific ex-Japan, which lost 4.8%, predominantly as a result of euro appreciation against Pacific region currencies.

Performance figures were submitted by so-called ‘closed’ funds, which are generally pension plans for a single employer or group of companies, and make up the vast bulk of occupational plans in Portugal.

The analysis used data covering around €13bn in assets, equal to 80% of the closed pension fund market in Portugal. It incorporated more than 100 pension funds, including the five biggest pension fund managers in the country.

Portuguese pension fund portfolios were still heavily dominated by debt, which made up 51.7% of portfolios (including direct and indirect holdings), according to estimates from the Portuguese Association of Investment Funds, Pension Funds and Asset Management (APFIPP). The estimates cover 88% of the Portuguese pension fund market at end-March.

Equities made up 22.8%, and real estate 13.1%, of portfolios at that date.

Meanwhile, Marques said that government and corporate bonds both made a small positive return in Q2 compared with the losses experienced in Q1.

For example, 10-Year EMU government bonds returned 1% over the second quarter of 2017, while European corporate bonds – as measured by the Bank of America Merrill Lynch EMU Non-Sovereigns index – returned 0.2% over the quarter. French bonds delivered positive returns due to a fall in French yields following the presidential election.