Inarcassa, the pension fund for self-employed engineers and architects, has reviewed allocations in corporate bonds towards products with a higher ESG rating, it said in its latest monthly newsletter. The decision was taken during the pension fund’s last board of directors meeting, it added.
The board of directors has also decided to slightly reduce the exposure of Inarcassa’s portfolio to the dollar, by partially taking advantage of the sharp rise in the US currency which led to breaking the 1:1 parity against the euro, it said.
Inarcassa has recorded returns of -6.5% since the beginning of the year at gross market values.
Equities remain under pressure as a result of fears about the stability of the world’s economic cycle fuelled by the tightening of monetary policies which also resulted in a new rise in bond yields, especially in Europe, the pension fund said explaining the challenges it is facing now.
Illiquid asset classes, and particularly real estate, are however contributing positively to the performance of the pension funds, it added.
The Italian scheme had assets under management at current market values of just below €12.5bn at the end of August, on par with the amount of assets recorded at the end of June.
In June, Inarcassa recorded returns of -7% amid increased volatility in financial markets. The board of directors had therefore approved a measure to hedge risk on European and Japanese equities.
The bond component in Inarcassa’s portfolio, in particular government bonds, stabilised instead as a result of the European Central Bank’s (ECB) commitment to tackle an excessive widening of spreads between the yield between the Bund and the bonds of peripheral countries in Europe.
The board of directors decided to increase its allocation to green government bonds, Inarcassa said, by opting, in addition to Italian government securities (BTP), also for government bonds linked to inflation issued in France.
“We believe that, following aggressive re-pricing in August and early September, an overweight in bond markets may now be justified,” Fabio Castaldi, senior investment manager at Pictet Asset Management, said in a statement.
Pictet said the energy crisis and the exacerbation of the war in Ukraine will inevitably have a profound impact on companies and consumers in Europe.
In the context of a likely recession in the next six months, it is possible that interest rate hikes by the ECB may be less aggressive than what is now priced by the markets, and suggested by Christine Lagarde at the ECB meeting of September, according to Castaldi.
Equity markets, however, remain vulnerable, with a correction of indices observed up to now that is mainly linked to reviewing rising interest rates.
“The deterioration of the macroeconomic environment risks impacting corporate profits […] We therefore believe that a defensive stance on risky assets is currently the approach to be taken by investors,” Castaldi said.