Average gains of 1.5% in the final quarter of 2022 took Portuguese pension funds to an average -11.4% return for the 12 months to 31 December 2022.

In contrast, the three months to September 2022 had produced an average -2.9% return, with a -11.3% return for the 12 months to that date.

The return for calendar 2021 had been 5.1%.

The Q4 2022 returns bring annualised three-year returns for Portuguese pension funds to -1.6% as at end-December 2022, with annualised five-year returns of -0.2% to the same date, according to WTW.

These compare with -1.7% and -1.4% for the annualised three and five-year returns, respectively, to end-September 2022.

Performance figures were submitted to WTW by about 75% of the pension funds in Portugal, the overwhelming majority of them occupational funds.

José Marques, director, retirement, at WTW, said: “The 2022 calendar year saw very high volatility driven by uncertainties in inflation, interest rates, energy prices and economy growth. It was indeed a year where the three main asset classes used by pension funds – equities, government bonds and corporate bonds – saw significant negative returns.”

But he added that the final quarter was actually the first quarter in 2022 showing positive returns for both equities and corporate bonds.

“And as Portuguese pension funds are mostly invested in equities and bonds, we saw positive overall returns, albeit dragged down by further falls in government bonds,” he added.

He said the positive fourth quarter returns in equities were particularly marked in the European region, where equity indices showed returns of around 10% on average, while global equities made much lower returns.

“But corporate bonds returned close to zero, though still positive, and government bonds again experienced a negative quarter,” Marques said.

And he observed that despite positive equity returns in Q4, 2022 as a whole delivered significantly negative results for all asset classes, except commodities.

“Long-term bonds had the worst outcomes, caused by the sharp rise of interest rates across the globe,” he concluded.

At the end of December 2022, equities made up 19% of Portuguese pension fund portfolios, down from 21% over the past 12 months, according to data from regulator ASF and from the Association of Investment Funds, Pension Funds and Asset Management.

The bulk of assets – 61% – was in debt, the same as at end-December 2021, with just under half still in direct holdings of government bonds. Real estate allocations formed 13% of portfolios, up from 11% last year.

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