PORTUGAL – A change in asset allocation by Portuguese pension funds has resulted in an improvement in returns in the third quarter, according to results published by consultant Watson Wyatt.
Median returns from the country’s segregated funds for the third quarter were –2.4% from -3.2% the previous quarter.
The third quarter was a difficult period for financial markets globally. The fall-out of WorldCom’s bankruptcy and US Securities and Exchange proposals ensured the continued decline of global stock markets, aided by growing public deficits in the EU, and Middle East conflict.
Portuguese pension funds reacted accordingly by increasing allocation to fixed and floating rate Euro, and to Euro public debt and international bonds. Holdings in fixed income rose to 58.9% of total assets from 53.8% in the second quarter and 54% in the first quarter. Euro public debt was the best performing asset class for the second quarter running, returning 5.1%, and beating its benchmark, the Salomon Euro WGBI, which returned 4.9%.
Property holdings were also increased to 10.4% of total assets from 9.7% the previous quarter. The asst class produced returns of 3.6%.
Allocation to international equities, Euro equities and domestic equities was decreased to a combined amount accounting for 20.9% of Portuguese pensions fund holdings. Cash also decreased slightly to 9.8%.
Portuguese equities were the worst performing asset class, with returns of –23.9 % over the quarter, underperforming the Portuguese Index, PSI-20 TR, which lost 22.3% during the quarter.
Cash produced the highest returns this year with 1.1%.
From a long-term perspective, Portuguese pension funds have produced negative returns of –5.1% over the last nine months, and –2.1% over the last twelve months.
Watson Wyatt Portugal’s Carlos Ravara declined to make a forecast for the fourth quarter, but says that if the positive trend in the equity markets seen in October and November continues throughout December then Portuguese pension fund returns in the quarter could see 2002 ending on a high note.
Watson Wyatt’s quarterly survey study covers 177 pension funds and third pillar personal savings plans, managed by 15 pension fund managers. The combined asset value of these funds is 12.9 billion euros, equating to 93% of the total market value of pension funds in Portugal.