SWITZERLAND – The median return for Swiss pension funds in the first half of the year was +4.5% according to Watson Wyatt and the Swiss Pension Fund Association, ASIP.

The positive performance of the equity markets was the main driver behind the returns. Within the asset class there has been a noticeable change in allocation. While the funds’ investment in world equities has remained constant over the year, their allocation to Swiss equities has decreased.

“This reflects the intention of some pension funds to slowly move out of high-capitalisation Swiss equities into more diversified world equities,” say Watson Wyatt and ASIP. Swiss equities now account for around 15.9% of pension fund portfolios, compared to 19.5% at the end of June 2002. International equity investments still account for 21.7% of assets.

The allocation to international bonds has increased over a one-year period to 15.1%. Says the report: “The average return for foreign bond mandates over the first six months of 2003 was three percent better than their benchmark (J P Morgan Global Bond Index). This added value was created generally through an overweight position in European securities with longer duration and lower credit quality.”

The deviation in returns for the pension funds in the first half was much smaller than in the previous period. Ninety percent of all pension fund returns were within a narrow five percent band. Even smaller pension funds experienced similar returns to their larger counterparts, despite the fact that they are normally invested in balanced mandates.

The results will bring relief to many pension funds. Over 2002 the median performance of Swiss pension funds was –10.3%, and reserves had diminished considerably.

The positive performance of equity markets this year has further prompted the Swiss department of social affairs to reconsider lowering the minimum interest rate guarantee to two percent from the current 3.25% - itself lowered from four percent last year.