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Pension fund managers predict year of low returns Back  
Fund managers contributing to the annual Finance pensions review predict that equities will outperform bonds in 2003, but that returns will nonetheless be modest.
After one of the worst years in Irish pension fund management, when the average managed pension fund fell by 19 per cent, 2003 is not looking much brighter and the major theme of the year from this early vantage point will be ‘uncertainty’ says Noel O’Halloran, chief investment officer with KBC Asset Management. O’Halloran highlights the question marks surrounding the economic and corporate earnings outlook, as well as the uncertainty about inflation and deflation.

On top of these existing concerns, the threat of war in Iraq is leading to even more uncertainty in the markets.
However, it is not all doom and gloom, and managers do predict positive returns on the year. Eugene Kiernan, head of asset allocation at Irish Life Investment Management, says that stock markets will finish 2003 at higher levels than where we are today, but that these returns will not be spectacular, as ‘we don’t have the conditions for such returns; neither a spectacular environment nor a spectacularly cheap market’.

The majority of the managers predict that equities will out-perform bonds, with Tim Walsh, associate director of AIB Investment Managers, saying, ‘equities do not have to perform too strongly to outperform bonds, where yields are exceptionally low’. Martin Nolan, chief investment officer with Hibernian Investment Managers, expects an anaemic economic recovery in 2003 and forecasts that equities will return 10 per cent, whilst bonds, he says, are priced for a continued period of sluggish growth.

So what are the fund managers’ strategies to beat the markets?

Walsh says that stock selection will be the important factor this year and that AIB will be focusing on this, within a disciplined framework, in order to enhance investment performance.

The core of Kiernan’s investment strategy will be to continue to exploit mis-pricings at the individual stock level by adhering to Irish Life’s value discipline. He says that Irish Life’s process of picking stocks highlights dividend yield as an attractive buy signal and he believes that this income stream will only become more important in a world of more modest returns.

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