Private pensions in the Cayman Islands had mixed returns over the last year, and most performed worse than they did in 2014. Over the year, most pensions ended up in positive territory but with much slower growth, and some have dipped into negative territory this fiscal year as stock markets slump in the U.S. and other global economic factors hit investments.
A survey of some of Cayman’s more common pension plans shows that conservative plans as a whole did worse over the past year than more aggressive funds.
Chamber of Commerce
The Cayman Islands Chamber of Commerce Pension Plan, which saw 7 percent to almost 17 percent growth in 2014 depending on the fund, had returns drop significantly to about 1.5 percent to 3.2 percent for the year ending June 30, 2015, according to the pension’s audited financial statements. For the Chamber fund, all but the most aggressive plans lost money in the last months of the 2014-2015.
In its fact sheet covering April through June 2015, the Chamber Pension Plan lost between 0.6 percent and about 0.1 percent. The only Chamber fund to give positive returns for the quarter was the most aggressively invested, growing by 0.04 percent, with an annual return of a little more than 3 percent. All Chamber plans returned growth over the year, from about 1 percent on the most conservative income fund to 3 percent on the 2045 fund.
For Silver Thatch pensions, the company’s four portfolios all ended up in positive territory last year. For the fiscal year, all but one plan hit its benchmark. Like the Chamber plans, it was Silver Thatch’s most conservative fund that performed the worst. In an email, Deutsche Bank’s Dan Peterson said the company expected the U.S. Federal Reserve Bank to raise interest rates for the first time since the recession.
Had the Fed raised rates, Peterson notes, it would have created “volatility in the bond market.” As a result, he writes, the portfolio had a more conservative position than it would have had if it had been known interest rates in the U.S. would stay flat.
Peterson writes, “Given our house view, the bond portfolio was invested more conservatively and positioned to take less interest rate risk than our benchmark. As a result, the bond portfolio underperformed as the Fed ultimately chose to delay their rate hike over growing concerns to their outlook for economic growth and inflation.”
Despite the underperformance, he states, “It must be noted that the Fed will still be one of the first major central banks to hike rates. Thus, caution on the duration of our fixed income portfolio is warranted.”
Silver Thatch’s three more aggressive portfolios all did better than their benchmarks for the year, thanks, Peterson writes, to investments in European and Japanese equities. As the U.S. dollar strengthened over the year, Silver Thatch hedged its investments in the euro and the yen.
“Active managers within our allocation to North American equity provided strong returns over the course of our fiscal year, this helped to mitigate the volatility we witnessed in global equities as a result of geopolitical tensions and persistent growth worries,” he notes.
As of the end of October, the Colonial Group funds reported a year-to-date performance of -0.1 percent to 0.2 percent growth, between the company’s most aggressive and its conservative portfolios, with five-year returns between approximately 6 percent and 7.7 percent.
In a recent commentary on the U.S. market, Colonial analysts write: “On the economic front, data releases continued to be mixed. In positive developments, the world’s largest economy expanded more than previously forecasted in the second quarter, boosted by gains in consumer spending and construction.”
On the other end, “U.S. equities continued to slide through September, pushing the major indices further into negative territory.” The Dow, S&P and Nasdaq have all fallen for the year.
The company’s analysts write that home sales fell toward the end of the summer in the U.S. Additionally, the company notes, “Manufacturing activity stagnated in September as a stronger dollar and faltering overseas markets led to the slowest pace of orders since November 2012.”
Globally, Colonial pensions saw the biggest losses in its investments so far this year in global bonds, Southeast Asia equities and U.S. small cap equities.
Bahamas-based Fidelity Bank’s pension plan over the last fiscal year fell by more than 1 percent. According to members’ statements, the plan’s benchmark called for a 0.84 percent increase, but returns for the 2014-2015 year ended at -1.16 percent. The statement faulted the low investment in U.S. equities for the year which, the statement notes, Fidelity considers to be “very expensive and risky.”