Pension savings with annual returns of 4% or 24%?

Our Russian Fund and Eastern European Fund have provided 24% respective 23.4% in average returns since inception.

This period includes two of the largest falls in the stock market for the Russian Fund and one of the largest for the Eastern European Fund. Volatility has been extensive, but with a long-term perspective the returns have been very good, and a long-term perspective is exactly what pension savers should have. Therefore, we believe that these funds are well-suited for pension savings. Imagine our surprise during the year when we read in various Swedish advertising campaigns that it is better to have an annual consistent return of 4% than 24%. It is obvious that this cannot be the case. It is only beneficial to invest in a fund with a low absolute return if you would like to withdraw the entire savings precisely during a year when the stock market has fallen. Furthermore, it is reasonable to assume that those who are saving for their retirement do not want to withdraw their entire savings on the day that he or she retires, but instead choose to receive payments for many years to come.

Unfortunately, there are many people who do not understand this, which means that they have yet to start saving in the fast growing economies in the world. Only a small portion of the world’s pension funds are invested in Emerging Markets. One study of British pension funds showed that less than 5% of equity investments are in so called Emerging Markets. Today Emerging Markets equals 13.1% of index, which is a strong increase compared to the level ten years ago. At the end of 2002 the level was 3.8%. Thus, British pension savers today are already considerably underweight in the fastest growing parts of the world, which does not serve them well.

Don’t wait too long to correctly invest your pension for the best future development.

Peter Elam Håkansson
Written on flight SQ 352 (Singapore Airlines) between Singapore and Copenhagen.