Pension schemes favour equities as returns improve

What you need to know:

  • The returns on fixed income dropped to 13.3 per cent at the end of June 2018 from of 15.1 per cent as at June 2017.
  • The improved performance of equities also helped pensioners beat inflation in their returns in the one year period.
  • n an annualised basis, the NSE all share index declined by 8.8 per cent but funds have retained an interest largely due to the less than impressive performance of competing investment classes, Mr Raichura said.

Pension funds raised their allocation to equities to 25 per cent from 21.5 per cent in the one year to June after returns improved from the asset class in the period.

Industry analysis done by fund administrator Zamara shows that returns on equities in 12 months to June 2018 rose by 4.5 percentage points to 16 per cent, resulting in schemes increasing their holdings of the asset class at the expense of fixed income, whose allocation fell from 72.9 per cent to 68.4 per cent during the same period.

The returns on fixed income dropped to 13.3 per cent at the end of June 2018 from of 15.1 per cent as at June 2017.

The improved performance of equities also helped pensioners beat inflation in their returns in the one year period.

“Over the last one year, the average pension fund beat inflation by 9.3 percentage points. This was because equities and fixed income securities both gave returns above the inflation rate,” said Zamara CEO Sundeep Raichura.

However, despite the Nairobi Securities Exchange (NSE) #ticker:NSE posted a strong performance in the second half of last year and the first quarter of 2018, with share prices retreating in the second quarter of 2018 to claw back some of the gains equities were making for retirees.

Another industry report by Actuarial Services East Africa (Actserv) released last week showed that in the three months to June, returns on equities stood flat at 0.1 per cent.

This was due to profit taking and foreign investors selling out in favour of other emerging markets.

On an annualised basis, the NSE all share index declined by 8.8 per cent but funds have retained an interest largely due to the less than impressive performance of competing investment classes, Mr Raichura said.