Recovery a long way off for pension funds

Six funds in Trustnet’s 7,000-plus UK pension database have registered gains over 100 per cent in the year to 13 November, although three are life mirrors of SVM UK Opportunities. A Skandia link to BlackRock’s Latin American Investment Trust (IT) has been the very best performer in 2009, with manager Will Landers highlighting returning risk appetite across the world.

Top 10 performing pension funds over 1-yr

Rank	Fund	Group	1-yr %
1	AXA JPM Natural Resources P 1	AXA Sun Life	146.3
2	HLL JPMorgan Natural Resources Pn	Hartford Life	145.9
3	LV= JPM Natural Resources Pn	LVFS	144.5
4	Zurich JPM Natural Resources ZP	Zurich Assurance	144.4
5	FP JPM Natural Resources Pn	Friends Provident Life&Pen	144.3
6	Canlife JPM Natural Resources Pn PS4	Canada Life	143.0
7	Scot Eq JPM Natural Resources Pn	Scottish Equitable plc	142.9
8	Scot Eq SC JPM Natural Resources Pn 1.00%	Scottish Equitable plc	142.8
9	Aviva JPM Natural Resources Pn S6	Aviva Life & Pensions UK Ltd	142.7
10	Winterthur JPM Natural Resources Pn	Winterthur Life	142.7

Source: Trustnet.com

Following a very difficult second half of 2008, his portfolio entered 2009 positioned to benefit from a more constructive market environment – with around 6 per cent gearing deployed in Brazil. This increased the overweight position in the region to more than 13 per cent at the start of 2009 and the fund has benefitted from Brazil’s world-leading performance this year.

Overall, Landers attributes his returns to this overweight in Brazil and underweight in Mexico, plus positive stock selection in both areas.

"Latin American markets have outperformed given their resilience to the global financial crisis. The fact none of the local major economies suffered any significant liquidity crisis and were able to use monetary tools as well as fiscal stimulus to aid quicker recovery was a large differentiator versus the developed world," he said.

Brazil was one of the last economies around the globe to be impacted by the global recession and among the first to show signs of recovery. Landers said record-low nominal interest rates, with benign inflation expectations for the remainder of 2009 and 2010, should enable credit availability to continue expanding at more affordable levels. In recent months, he has taken some profits from outperforming stocks in Brazil while maintaining the country as the largest overweight, also slightly reducing the underweight position in Mexico.
 
Meanwhile, Neil Veitch is also enjoying an exceptional 2009 on SVM UK Opportunities, with around 60 per cent of performance from stocks retained during mass overselling last year. He said sentiment overtook fundamentals in the third and fourth quarters, with companies sold despite no discernible change in operating fundamentals. This led to a tough 2008 for UK Opportunities, losing more than 50 per cent, but Veitch is already up over 100 per cent year-to-date.

He was initially over optimistic on market recovery and bought too many cyclicals but held onto these amid panic selling and most have gone on to meet his original expectations. UK Opportunities applies strict price targets for disposing of holdings and indiscriminate selloffs also allowed Veitch to buy back many favoured companies at discounted levels last year.

He had sold off stocks like Balfour Beatty and Babcock in 2006 as they hit targets and was able to reintroduce them cheaply, benefitting from powerful bounces. After the strong market rally since March, he believes much of the easy money has been made, taking some cyclical risk out of the portfolio.

Despite declining economic momentum, Veitch said the earnings picture remains strong and the majority of companies continue to exceed expectations. "As economies have stabilised and risk premiums reduced, it is earnings that will be the next driver of the market over the next six months. We are now looking for more sustainable growth or cyclical stories where there are internal or external drivers, preferably both, to bring these earnings through," he added.