Irish equity drags down pension funds
IRELAND - Irish managed pension funds reported negative returns of -0.6% for the month of August.
Market turbulences and the large exposure to Irish equities continued to drag down the funds although performance is up from -3% in July, Rubicon Investment Consultants found in its latest survey.
The only fund with positive returns for the month was the one managed by Canada Life/Setanta. The 0.1% return was mainly down to the fund having a much lower exposure to Irish equities than any other managed pension fund in the Irish market, a spokesperson for Rubicon explained to IPE.
Canada Life/Setanta has less than 5% in Irish equities while the average exposure is around 18%. Bank of Ireland Asset Management with over 23% investment in Irish equities posted the worst returns of -1.3%.
"This is equivalent to over 20% of the funds' equity portfolios, whereas the Irish stock market represents just 0.3% of the world market," Rubicon pointed out.
Since the beginning of this year, the Irish stock market index ISEQ has returned -9.27% compared to 3.72% for the FTSE All Share. In August the ISEQ returned -1.64% while the FTSE reported -0.27%.
"The problem is compounded by the fact that the Irish stock market is heavily dominated by a very small number of large companies," Rubicon noted.
The consultancy added in recent years the problem was overlooked by pension managers as Irish equities outperformed their peers.
This is also apparent when looking at the longer-term performance of managed funds. Comparing annualized five-year performance Canada Life/Setanta only reaches rank 18 out of over 20 pension funds. Ten years ago it was number 14 of 15.
However, as performance has dropped pension funds are looking towards government bonds for more stable returns, Rubicon notes.
"This led to long-dated bond prices rising by approximately 0.5%."