Pension funds urged to keep NSE equities despite poor 2015 returns

Pension funds should not rush to ditch equities on the back of poor 2015 returns but instead stick to long-term investment plans.
The chief executive of financial services firm Alexander Forbes, Sundeep Raichura, said Wednesday that pension fund investors ought to take a long-term view of investments, noting that previous trends from 2008 and 2011 have shown that stock market dips tend to be followed by extended periods of growth.

Pension schemes had a rough 2015, recording returns far below the rate of inflation mainly on the back of an under-performing equities market.

Industry analysis done by Alexander Forbes on 378 schemes with a total of Sh535.8 billion assets showed that the weighted average return was a paltry 0.5 per cent, while analysis by Actuarial Services (EA) on 75 schemes showed a return of 2.15 per cent.

“There is no need to make knee-jerk reactions and change investment strategies and policies. Staying the course, having the right policy and looking at a reasonable time frame over which one monitors the investment is important,” said Mr Raichura.

“A lot of people only think of the immediate short-term figure of 0.5 per cent, forgetting that the previous three years the average return was 16 per cent. Overall, time in the market is better than timing the market,” he added.

READ: Pension schemes record poor returns in 2015 as stocks dip

Pension schemes on a weighted-average basis allocated 30.2 per cent of their assets to equities, with the fixed income double that at 61.2 per cent. Property and offshore investments took up 7.4 per cent and 1.2 per cent respectively.

According to Alexander Forbes, pension schemes saw their returns from equities come in at a negative 11 per cent, while the returns from fixed income stood at 7.8 per cent for the year ended December 2015.

Both investment class returns were below the benchmark inflation level of 8.01 per cent.

The NSE’s benchmark 20-Share Index lost 21.9 per cent last year as the market turned bearish, shaving off Sh251 billion from investor wealth.