The average investment return for occupational pension funds in Portugal over calendar year 2014 was 1.6%, according to figures compiled by Towers Watson.

In calendar 2013, returns had been 5.9% and the year before, 6.3%.

The highest individual return was 18% and the lowest -10.1%, while the median return was 4.2%.

The figures were taken from a sample of 150 pension funds with aggregate assets of €11.8bn, about 90% of the local market.

Averages were calculated using market value weightings.

Gaudêncio Guedes,
 senior investment analyst at Towers Watson, said: “Thelow weighted average return reflects the poor performance of the biggest pension funds in the market.”

Guedes ascribed the poor performance partly to over-exposure to the euro-zone within the equity allocation.

He said: “Portuguese pension funds are mainly concentrated in the euro-zone market, both in equities and euro-zone core and national sovereign debt.

“Euro-zone equities performed poorly over 2014, while euro-zone sovereign bonds beat all the forecasts, mainly in the peripheral countries.”

At 31 December 2014, euro-zone fixed income stood at 36% of portfolios, down from 40% on 31 August 2013 – the last time the survey was carried out – while 1% was in international fixed income.

Portuguese equities made up 7% of portfolios, with euro-zone equities (excluding Portugal) at 8%, and a further 8% in global equities, similar to the allocations in 2013.

However, another factor affecting performance was the large allocation to real estate (direct 11%, indirect 6%) and to cash (19%).

The comparative figures for 2013 were 14% in direct real estate, 7% in indirect real estate and 12% in cash.

Guedes said: “Most, if not all, of the direct real estate consists of owning physical assets – buildings – within Portugal.

“Cash holdings are also largely in euros, and both these asset classes have performed poorly compared with global markets.”

He added: “Both in 2014 and 2013, we can identify a trend showing a preference by managers to have significant amounts of these two asset classes in their portfolio, dragging down returns.”