Investment markets’ strong start to the year pushed investment returns up to 5.3%
Elo Interim Report 1 January – 31 March 2015
- The return on Elo’s investment operations was 5.3 per cent in the first quarter of 2015.
- At the end of March, the value of Elo’s investments totalled EUR 20.9 billion.
- Solvency continued to improve. Elo’s solvency ratio was 29.6 of technical provisions while the solvency capital was 2.5 times the solvency limit.
Very strong start to year in equity markets
“The best performing asset class in Elo’s portfolio was equity investments with a return of 13.2 per cent. The best return came from investments in Finland and the rest of Europe. Investments in Finnish listed equities generated a return as high as 20.1 per cent and European listed equities returned 17.0 per cent,” says Hanna Hiidenpalo, Director and Chief Investment Officer.
During the first quarter, the geographic spread of the investments had a significant impact on Elo’s equity returns. The government bond purchase programme launched by the ECB boosted the returns from European equity investments to an outstanding level. European equity values increased by almost 17 per cent while the Finnish equity market did even better with an over 18 per cent growth in equity values. The emerging equity markets also performed well with returns of over 15 per cent. In contrast, the US S&P 500 index grew by less than one per cent, but converted to euros, the returns were almost 14 per cent.
The weakening euro to dollar exchange rates also played a major role for the returns. In the first part of the year, equity market returns were particularly influenced by increases in pricing and the positive currency impact as the euro continued to weaken.
"Equity market values are to some extent already very high. It seems that the trends in the real economy and the investment market are diverging,” says Hiidenpalo.
Fixed income investments yielded a positive return
During Q1, over twenty central banks globally made decisions to decrease the central bank rates. The European government bond purchase programme launched by the ECB in March has significantly lowered interest rates within the euro zone.
Elo continued to diversify its fixed income investments also outside the euro zone. Returns on the fixed income investments were 1.1 per cent despite the interest rate level that was down to almost zero, or even negative. The measures taken by the ECB boosted the returns from both the government and corporate bonds, which were higher than expected.
Elo's real estate investment returns were 1.8 per cent. The best performers were the real estate investment funds with 3.8 per cent. Elo’s hedge funds generated a 2.7 per cent return.
“The excellent trend in investment returns is reflected in a significant improvement of our solvency. It is now as high as 29.6 per cent of technical provisions, compared with 25.8 per cent at the beginning of the year,” explains Lasse Heiniö, Managing Director of Elo.
The solvency capital exceeded the solvency limit by a factor of 2.5.
Global economy dragging its feet
During the first quarter of 2015, the global economy did not meet the growth expectations. Despite the 3 per cent growth that was still anticipated towards the end of last year, US growth looks like it will remain at about 1.5 per cent.
“The disappointing US growth seems to be caused by the downward turn of the oil industry, the stronger dollar and the poor growth of the global economy, and possibly also by the harsh weather conditions in the first part of the winter,” explains Hanna Hiidenpalo.
“The situation in Europe has taken a positive turn. Here, the brisker growth is underpinned by lower oil prices, the weakening of the euro and the ECB’s massive stimulus measures. Euro zone growth which was close to zero for a long time has now reached almost 1 per cent p.a.”
Elo Mutual Pension Insurance Company Interim Report 1 January −31 March 2015, presentation (pdf) >
For further information:
Lasse Heiniö, Managing Director, tel. +358 20 703 5101
Hanna Hiidenpalo, Director and Chief Investment Officer, tel. +358 20 703 5668