Iceland’s largest pension fund has praised the construction of its investment portfolios for resisting fluctuations in returns during the COVID-19 financial markets rout earlier this year, but warned the long-term impact of the pandemic is still unclear.
Lífeyrissjóður starfsmanna ríkisins (LSR) said the value of its portfolios was now higher than at the beginning of this year, following a return for the first five months of just over 3% for the fund as a whole.
At the end of 2019, LSR had total assets of ISK1.02trn (€6.6bn), according to its annual report.
In a commentary on its website, LSR said: “The strengths of LSR’s portfolios quickly became evident as the effects of the COVID-19 epidemic began to take hold in the world’s securities markets.”
The pension fund, whose funds pay over a third of all pensions and benefits distributed by Icelandic pension funds, credited its investment policies with laying the foundation for good asset distribution, both in terms of diversification across asset classes and between domestic and foreign markets.
This spreading of risk had significantly reduced fluctuations in returns, LSR said.
The pension fund also mentioned particular market developments which had worked in its favour during the months of high volatility in securities pricing.
Although there had been a sharp decline in global stock markets in February and March, especially those outside Iceland, the Icelandic currency’s exchange rate had weakened, LSR said.
“At the same time, the market value of domestic bonds increased, so the overall effect in the LSR portfolio could be said to have been less than was feared at the beginning of the epidemic,” it said.
Added to this, the pension fund said the turnaround in foreign equity markets in May lifted the value of LSR’s portfolios.
But the Reykjavik-based fund warned the outlook remained uncertain.
“What the long-term impact is, however, is still unclear as the global economy is still recovering from recent months’ events, and there is considerable uncertainty in global securities markets,” LSR said.
The Icelandic krona has fallen by around 14% so far this year against both the euro and the dollar.