THE NETHERLANDS - High equity returns at the beginning of 2006 were eroded to a 0% return by a -5.2% performance in May, according to the WM Universe of Dutch pension funds.
Figures for the Dutch Pension Fund Index (DPFI) in the first six months of 2006 suggested strong macroeconomic numbers and company results could compensate for the deteriorating interest rate environment.
According to the universe, a shift in market sentiment towards the end of the second quarter was especially obvious in Japan and the emerging markets.
And while the US equities market continued to show positive returns in local currency terms, the depreciation of the US dollar resulted in returns of -5.4% for the Dutch investor.
Fixed income produced a -3.3% return, and international bonds were also down at -6.7%, mainly due to the impact of the stronger euro.
The report said global fixed income markets had been under pressure since the beginning of 2006 as investors grew more sensitive to inflation levels and the restrictive monetary policy of central banks.
However, bond yields increased significantly across all major markets.
Real estate returned 7.2%, a consistently positive result said the report, despite the sensitivity of these investments to interest rate developments and equity returns,
Listed real estate funds were “remarkable” it added, returning 14.5% during the time period.
The DPFI itself returned 0.4% in the first half of 2006, including the effects from currency hedging.
Due to a depreciation of the US dollar by 8% 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% during the time period.
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.
WM Performance Services is an investment performance measurement business.
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