Volatile stocks hold back pension funds

Volatile stock markets held back pension funds in the first half of 2006. Strong gains in the first quarter have almost been wiped out in the last three months.

The average Irish fund lost 4.2 per cent in the second quarter, with Bank of Ireland Asset Management (BIAM) coping worst with the market turbulence as its funds shed 5.3 per cent of their value. The least badly hit was Hibernian, which saw the value of its funds slip by 3.1 per cent.

The 4.2 average loss in the second quarter, compares to a 5.5 per cent average gain by Irish funds in the first quarter. At the half-year stage, BIAM is the only Irish provider in the red with a decline in asset value of 0.9 per cent, compared to an average six-month gain for the market of 1 per cent.

Hibernian again has been the strongest performer so far this year with a gain of 2.6 per cent, well ahead of its nearest rival, Eagle Star at 1.5 per cent.

Over the last 12 months, Standard Life's 13.6 per cent gain against a market average of 12.2 per cent leads the field, with BIAM again bringing up the rear on 7.3 per cent.

Despite the turmoil, June was the first month in three that pension funds reported any gains, if only 0.1 per cent on average.

That marked a significant recovery from May, when 4.2 per cent was knocked off the value of pension fund assets across the board.

"Early in the month, investors rotated into defensive sectors and into bonds," said Fiona Daly, managing director, Rubicon Investment Consulting. "However, sentiment improved as the month progressed and cyclical stocks rallied."

The performance among Irish funds was uneven with AIB Investment Managers reporting a market leading 0.7 per cent gain and four managers reporting losses. Among those, Standard Life's 0.5 per cent decline was the worst.

The news was not all bad as bond yields, which are used to calculate pension fund liabilities, continued their favourable run and climbed by around 0.1 per cent over the month.

Over the longer term, Eagle Star's 4.5 per cent annual return over the last five years leads the market and is significantly ahead of the 0.7 per cent annual return by laggard KBC Asset Management over the period, which is distorted by the impact of the bursting of the dotcom bubble.

Oppenheim continues to lead the way over the more relevant 10-year timeframe, with an annual gain of 11.8 per cent, comfortably ahead of nearest rivals BIAM and Hibernian at 9.6 per cent.