Elo’s investments produced a positive return
Interim report 1 January – 30 June 2016
- The return on Elo’s investment operations was 1.0 per cent for the period 1 January – 30 June 2016.
- At the end of June, the value of investments totalled EUR 20.8 billion.
- The solvency ratio was 22.7 per cent at the end of June, and the solvency capital exceeded the solvency limit by a factor of 1.9.
“Elo’s third year of operations got off to a good start. The work carried out together with our partners Fennia and LocalTapiola to improve customer service and to gain our customers’ trust has produced results: we have gained more customers in the transfer business between pension companies in the early part of the year and maintained our strong position as an employee pension insurer for new companies. Elo’s operations continued to be efficient and the expense loading ratio was 78 per cent," says Satu Huber, Chief Executive Officer.
“The results of our investment operations were also good. Thanks to a successful and comparatively low-risk strategy and good diversification, Elo’s solvency remained stable in the first half of the year and its investments generated a positive return,” Huber says.
Overall return on Elo’s investments positive thanks to excellent return from fixed income investments
The first half of the year was lively in the global economy and the investment markets. Following the turmoil of the beginning of the year the investment markets improved during the spring, mainly thanks to the easing measures of the European Central Bank and the Bank of China. In late June, the British EU referendum forced the markets into a very unusual and uncertain state. The terror attacks in France and the crisis in Turkey further added to the political uncertainty. After the news of the Brexit result, however, investment income recovered relatively quickly.
Elo’s investment income for the 1 January – 30 June 2016 period was 1.0 per cent. Income for the second quarter was 1.3 per cent.
“The interest rates of government bonds fell globally to a historically low level, increasing returns from fixed income investments on a wide scale. We continued to efficiently diversify government bond investments outside of the euro area, in particular in the USA, and in emerging markets. Government bond returns increased to 2.9 per cent. All in all, fixed-income investments returned 3.0 per cent in the first half of the year,” says Hanna Hiidenpalo, Director and Chief Investment Officer.
The beginning of the year was difficult in the corporate bond market but increasing commodity prices and the ECB’s announcement of a corporate bond purchase programme resulted in solidly positive returns for the first half of the year. US and emerging market corporate bonds performed best in Elo’s corporate bond portfolio. The return on Elo’s corporate bonds was 4.3 per cent.
Uncertainty in the global economy influenced the equity markets early in the year
Equity prices fluctuated greatly as the equity markets searched for direction throughout the first half of the year. At the end of June, markets were close to last year’s level in Finland and the United States, while in Europe they fell by about 10 per cent and in Japan by about 20 per cent. In contrast, emerging market equities were up by approximately 5 per cent.
Elo’s equity investments successfully weighted the US and emerging markets at Europe’s expense. The share of listed equity investments of investment assets was kept moderate in the first half of the year and their share was 27 per cent at the end of June, including derivatives, and their return was -4.0 per cent.
Other investments diversified risk and brought a moderate return
Despite the turbulence of the markets, property and real investments were successful diversifying investment instruments and the return for the first half of the year met expectations.
“Elo has kept the risk level of its investment portfolio very low as excellent investment opportunities are still beyond the horizon,” says Hanna Hiidenpalo.
Economic outlook exceptionally uncertain
The growth of the global economy improved by close to 3 per cent after performing poorly at the beginning of the year, but significant uncertainty and risk remain. In the euro area, growth remained around 1.5 per cent. The UK’s decision to exit the EU is likely to significantly slow down growth in the euro area but it is probable that recession can be avoided with the ECB’s strong easing measures. Europe is faced with a long and arduous process, the uncertainty of which is likely to hold back companies’ investments.
“Finland’s economic growth finally attained the same level as the rest of the euro area but our economy remains very sensitive to Europe’s economic development. Interest rates, which look like they will remain low, will support growth, a positive inflation trend and the investment markets.
Elo Interim Report 1 January – 30 June 2016 (PDF) >
Satu Huber, Chief Executive Officer, tel. +358 20 703 5811
Hanna Hiidenpalo, Director and Chief Investment Officer, tel. +358 20 703 5668
Sarianne Kirvesmäki, Director, Finance, tel. +358 20 703 5134