Dutch pension funds are up 5% this year, according to the WM Company. Its Dutch Pension Fund Index is based on the returns of standard market indices and on the asset allocation of its universe of pension funds as of the end of last year.
WM says a rise in inflationary expectations in the second quarter of 2004, which pushed bond yields higher and led to a sell-off in equity markets in May, drove the overall returns. Investor behaviour altered, as institutions moved away from sectors that are perceived as sensitive to market moves (e.g. Diversified Financials, Semiconductors and Technology Hardware) toward more defensive sectors (e.g. Utilities, Energy and Pharmaceuticals). At the same time, investors appeared to favour European-based investments at the expense of Asian markets such as Singapore, Thailand and Hong Kong.
Against this background, equities in the Pension Fund Index struggled to post significant gains and showed a return of 5.0 percent for the year through 31 August. “These defensive moves convey a broad sense that institutions seem to be taking a less optimistic view of the investment climate,” says Robert Rijlaarsdam, general manager of the WM Company in the Netherlands.
This dip in Dutch investor confidence coincided with the first rises in US interest rates for almost four years. In this environment, the fixed income component of the Pension Fund Index achieved a cumulative return of 4.2 percent for the year through 31 August.
On a more positive note, indirect real estate investments (listed real estate funds) have risen sharply to return over 21 per cent for the year to-date. This has fuelled high returns for real estate as an asset class, which is up to 10.3 per cent for the year through 31 August.
The total return of the Dutch Pension Fund Index for the year through 31 August is 5.1 percent. (This result excludes the impact of currency hedging in the pension fund portfolios.)