Despite a difficult second quarter, Latvia’s mandatory second-pillar pension funds delivered positive returns for the first half of 2015 according to the Association of Latvian Commercial Banks.
Year-to-date returns for the sector averaged 2.71%, with the highest yield (3.50%) generated by the eight active (equity-weighted) plans. Returns for the four balanced funds averaged 2.31%, and those of the eight conservative plans 0.89%.
Average one-year returns fell to 4.8%, around half that generated three months earlier. The active plans yielded 5.6%, balanced funds 4.3% and conservative plans 2.8%. The respective returns for the end of the first quarter of 2014 were 11.0%, 9.2% and 5.9%.
Assets increased by €180m since the start of the year, of which €53m came from investments returns. Assets totalled €2.2bn, a year-on-year growth of 18.2%, while membership declined marginally to 1.24m.
The overall investment asset breakdown reflected nervousness in the bond markets, and while the funds did not hold Greek securities, events in Greece inevitably dragged down value.
The share of bonds and bond funds fell to 54%, from 60% in the first quarter, while the bank deposit share grew by 2 percentage points to 5% and that of cash by 3 percentage points to 8%. The share of equity and equity funds remained unchanged at 30%.
Geographically, Latvian markets accounted for the biggest share of investments at 39%, followed by eastern and central Europe (18%), the rest of Europe (17%) and global/international markets (14%).
The trend was somewhat different for the 14 open-ended and one closed-end third-pillar funds.
Here, year-to-date returns as of end-June 2015 averaged 3.74%. The balanced plans, which have close to 70% of their assets in bonds and bond funds, generated 2.57% and the active ones, with around 40% of their investments in equities and equity funds, returned 5.44%.
However, while one-year returns from the balanced funds fell to 4.31%, from 5.41% a year earlier, those of the active funds rose from 7.90% to 8.32%.
The third-pillar funds were more geographically diversified than their second-pillar counterparts, with only 33% invested in Latvia and 11% in east and central Europe. The rest of Europe accounted for 25% of asset allocation, and global markets 16%. They also had a higher exposure in North America (7%) and Asia (3%).
The third pillar recorded a much faster growth than the second pillar over the previous year, with assets increasing by 21.7% to €306m, and membership by 7.9% to 244,438.