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IPE special report May 2018

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Swiss Pensionskassen increase equities to counteract SNB losses

Swiss pension funds suffered losses of between 1.7-1.8% in the wake of the Swiss National Bank’s (SNB) decision to end the peg to the euro, accoding to estimates by UBS and Credit Suisse. 

While both banks blame the SNB’s surprise decision to cut the peg, Credit Suisse noted Pensionskassen had already taken countermeasures.

Comparing asset values from the day prior to the announcement and its immediate aftermath, bond prices rose by over 1%, Swiss equities declined 14% in value and the impact of currency volatility on international equities lost Swiss Pensionskassen another 15%, noted UBS. 

UBS calculated funds had suffered losses of 1.71%, whereas Credit Suisse estimated portfolios had declined 1.83% by the end of January. 

Over the whole of January, Credit Suisse calculated a drop in the foreign equity quota in Pensionskassen portfolios by 7.2% to 16.6% and by 4.9% to 12.7% in the case of Swiss equities.

However the bank noted that Pensionskassen had ”on average topped up their equity investments”, judging by the much greater equity losses suffered by comparable benchmark indices.

In January the share of foreign bonds fell by 8.4% while the liquidity quota increased by 220 basis points to 8.7%, Credit Suisse pointed out in the first ever special edition of its usually quarterly Pensionskassenindex, issued for January in the wake of the SNB decision.

The exposure to Swiss francs increased by 110 basis points to 78.8%, while that to euros and US dollars fell by 30 basis points, respectively, to 4.2% and 7.4%.

Credit Suisse pointed out without hedges the drop in euro and US dollar “would have been twice as much”.

Following the market setback the bank predicts Pensionskassen to increase the share of foreign currency investments again but maybe only with hedges.

Read more about the impact of currency hedges on Swiss Pensionskassen’s returns

 

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