Latvia’s mandatory second-pillar pension funds’ 12-month weighted average return to 30 June 30 fell to minus 0.16%, from 2.71% a year earlier, according to the Association of Commercial Banks of Latvia (LKA).
The best results, of 1.53%, were generated by the eight bond-weighted conservative funds, followed by the four balanced funds at minus 0.47%, and the eight active, equity-weighted funds at minus 1.54%.
However, a market recovery in the second quarter was reflected in the funds’ improved three-month performance, with the active funds returning 0.37% (compared with minus 0.75% in the first quarter), and the balanced funds 0.48% (against minus 0.07%), while the conservative funds’ result was unchanged at 0.57%.
The funds’ asset allocation strategies became increasingly more risk averse throughout this year.
The active funds increased their share of bonds and bond funds to 52%, from 48% in the first quarter, while decreasing the share of bank deposits by 2 percentage points to 5% because of historically low interest rates.
The balanced funds likewise raised their bond share, by 5 percentage points to 75%, while cutting their equity and equity fund exposure, from 17% to 14%.
The conservative plans remained relatively unchanged, with bonds and bond funds accounting for 78%, and deposits 7%. Like the active funds, they have also kept a sizeable share, of 15%, in cash.
Brexit had little direct effect because the Latvian funds have relatively little investment in the UK, instead focusing increasingly on the home market.
Latvia accounted for 42% of invested assets, followed by Eastern Europe (23%), and global and international securities (12%).
More than 92% of investments went into euro-denominated assets, followed some way behind by the US dollar (6%).
Assets accumulated in the 15-year-old second-pillar system breached the €2.5bn mark at the end of June, a year-on-year growth rate of 14.4%, with net investment income accounting for almost €400m.
In the voluntary third pillar, the 12-month average fell to 0.52%, from 3.47% in June 2015, with the four balanced funds returning 1.1%, the 10 active plans minus 0.38% and the First Closed Pension Fund 0.75%.
The wide range of returns from the active plans partly reflected currency developments over the period, with the two US dollar funds returning 1.23%, while the eight euro-denominated funds averaged minus 0.45%.
Over the last three months, the active plans raised their share in equity and equity funds by 4 percentage points to 37%, while the balanced ones increased their bond holdings from 64% to 69%, in both cases at the expense of their cash holdings.
Assets grew by 11.3% year on year to €340m and membership by 7.2% to 261,925.