Icelandic pension fund Frjálsi has reported 2020 returns of between 7.4% and 15.1% for its customers, saying global equities remained its best-performing asset class.

In a results announcement, the pension fund said: “For the second year in a row, foreign equity was the best-performing asset class of the year for Frjálsi, with the MSCI World Index rising by 14.1% in US dollars or by 20.3% in Icelandic krónur due to its weakening.”

The return on the domestic stock market was also very good last year, Frjálsi said, adding that the stocks index had risen by 20.5% during 2020.

Frjálsi reported that the nominal return on its different pension investment options ranged from 7.4% to 15.1% for 2020, corresponding to real returns of between 3.8% and 11.2%.

Despite negative developments in key indicators last year, such as declining GDP and rising inflation and unemployment, securities markets generally produced good returns for investors last year, Frjálsi said.

“It is safe to say that the year 2020 was unparalleled due to the COVID-19 pandemic, but large fluctuations characterised returns in the financial and securities markets,” the Reykjavik-based fund said.

The Central Bank of Iceland’s key interest rate fell sharply during the year, it said, which had led to a decline in the yield on domestic bonds, which in turn resulted in a good return on the asset class.

“Government bonds can be expected to give lower yields in the coming quarters, as their yields have fallen considerably in recent years,” the pension fund said.

Frjálsi said it had been reducing its ratio of government bonds for several years, while increasing the allocations to corporate bonds and equities, with the aim of producing higher long-term returns for scheme members.

Icelandic pension funds have been working to increase their allocations to foreign equities over the last few years after the lifting of capital controls which were imposed following the country’s 2008 financial and economic collapse.

In November, Frjálsi said these allocations had grown last year as a result of the króna’s fall on foreign exchanges.

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