SWITZERLAND – Despite a more than 6% return in the first half, Swiss pension funds have no reason to celebrate due to low bond yields, says the Swiss pension fund association ASIP.

Zurich-based ASIP and consulting firm Watson Wyatt reported a 6.2% return for the first six months – driven by strong equity markets. But low bond yields are giving cause for concern.

“In spite of the good news, there is still no reason to celebrate as many funds are still in a tight financial condition,” ASIP and Watson said in a joint statement. They surveyed 71 schemes with assets of more than CHF143bn (€92bn) over 600 portfolios.

“It should also be noted that the ten-year government bond continues to yield less than the BVG-minimum return of 2.5%.”

It said that strong equity returns, positive currency returns and small gains from bonds had “led to one of the best half-year results seen since the beginning of the performance comparison in 2000”.

Equities returned 11.9% while bonds returned 2.8% (Swiss) and 7.8% (foreign currency).

The report said many institutional mandates reduced their duration relative to benchmark in expectation of rising interest rates, which did not occur.

The asset allocation trend was towards diversification. The allocation to hedge funds has risen to 3%.

“A constant concern for a large number of pension funds is their underfunding,” the report stated. “In addition, many pension funds do not hold the full amount of fluctuation reserves. It is also vital that the factors used to determine the interest rate are objective and not political.”

Earlier this month, separate reports from the CSAM Swiss Pension Fund Index and WM Performance Services found Swiss returns were the best for two years.