State Street subsidiary WM has released the results of the Dutch Pension Fund Index (DPFI) for the first six months of 2006. The DPFI is an indication of the expected return of the WM Universe of Dutch pension funds, and is based on the returns of standard market indices and on the asset allocation of the WM Universe at the end of 2005.
The DPFI showed a return of 0.4 percent in the first half of 2006, including the effects from currency hedging. Due to a depreciation of the US dollar by 8 percent in the first half of 2006, the hedging of foreign currency exposure had a positive impact on the total return. The unhedged performance of the DPFI was -0.8 percent during the time period.
Fixed Income showed a negative return of -3.3 percent. International Bonds were down as well at -6.7 percent, largely due to the impact of the stronger Euro. Since the beginning of the year, global fixed income markets have been placed under pressure as investors are more sensitive for the developments of inflation levels and the restrictive monetary policy of Central Banks. Bond yields increased significantly across all major markets.
High equity returns at the beginning of 2006 were completely eroded to a return of 0 percent by the poor performance in May (-5.2 percent). Strong macroeconomic numbers and company results could compensate for the deteriorating interest rate environment. A shift in market sentiment towards the end of the second quarter was especially obvious in Japan and the Emerging Markets. Although the US equities market continues to show positive returns in local currency terms, the depreciation of the US dollar resulted in returns of -5.4 percent for the Dutch investor.
Real Estate continued to show a consistent pattern of positive returns. Although these investments can be sensitive to interest rate developments and equity returns, the category showed a strong return of 7.2 percent. Listed real estate funds offered a remarkable return of 14.5 percent during the time period.