PORTUGAL - Portuguese pension funds are expected to return 1.9% for the first six months of this year after generating 3.7% for the first quarter, according to a survey by Watson Wyatt’s Lisbon office.

The first-quarter performance was driven by a return of 17.8% from Portuguese equities which represented 18.6% of pension fund portfolios at the end of March. This compares with a return of 5.1% for the last quarter of 2005. Over the first half, domestic equities are expected to return 12.3%.

Other strong performers in the first quarter included Euro equities ex-Portugal which accounted for 7.1% of pension fund portfolios and returned 8.3%, the second highest returning asset class. This is expected to fall to 3.7% for the first half.

Among the weaker performers, fixed rate Euro public debt – which accounts for over a fifth of Portuguese pension funds’ investment - generated a negative return of 1.4% This is expected to worsen to a negative 2.2% for the first half year.

Floating rate Euro bonds, which accounted for 15.5% of pension fund portfolios at the end of March, returned 0.7% in the first quarter, with 1.4% expected for the first half.

Property, which accounted for one fifth of portfolio assets at the end of March, is expected to return 2.7% in the first half.

Watson Wyatt cites increased volatility in financial markets driven by “apparent uncertainty in the Fed’s monetary policy.”