Despite the coronavirus (COVID-19) pandemic that hurt all sectors of activity, with the ensuing negatively impact on the global economy, AFAP SURA obtained exceptional returns for the pension fund savings managed during 2020.
The year-end closing yielded a very positive balance, even better than in 2019, which had already been very good. It yielded a 21.4% return in the Accumulation Sub-Fund and 16.1% in the Retirement Sub-Fund, which make up the Social Security Savings Fund (FAP, for its Spanish acronym), in the 2020 annual measurement in nominal Uruguayan pesos. Measured in Re-adjustable Units (RUs), yields reached 12.6% and 7.7%, respectively.
In 2019, the profitability of the Accumulation Sub-Fund was 13.6% in nominal pesos and 3.9% in RUs, while the Retirement Sub-Fund achieved 11.4% in pesos and 1.8% in Re-adjustable Units.
Hence, for the third consecutive year AFAP SURA positioned itself as a leader offering the best gross return as indicated by the official measurement (average of the last three years) of the Accumulation Sub-Fund, a fund that invests in the longer term, and diversification of the investment portfolio, as well as in the consolidated funds managed. Moreover, AFAP SURA shows the highest projected net return (after commissions) for its clients considering the last year’s data, according to the data published by the Central Bank of Uruguay.
“These returns were obtained thanks to the higher value of Uruguayan bonds, that of international stock indices and the active management of investments, which involved rotating them towards assets that yielded timely benefits. It was owing to the latter, together with other strategies adopted, that despite being 2020 an unstable year, savings set a growth record and we successfully continued to generate better pensions for the future”, claimed Santiago Hernández, Investment Manager at AFAP SURA.
There was also a strong currency shift, going from 32% of the portfolio in US dollars in early 2020 to values close to 14% at the end of the year, making the most of the good performance of Uruguayan peso-denominated bonds.
According to the official measurements by the Central Bank of Uruguay (BCU), at the end of 2020 the Accumulation Sub-Fund showed returns of 5.69% in real terms (measured in RUs) and 4.25% for the Retirement Sub-Fund, averaging the last three years, benefiting the savings of the firm's affiliates.
The Social Security Savings Fund of the entire AFAP system accumulates about $16 billion (about 25% of the Uruguayan GDP), and corresponds to the social security savings of almost 1.5 million Uruguayans (1,468,580 beneficiaries).
On the other hand, Hernández explained that “thanks to the liquidity that we had foreseen, there were funds available - around 15% of the Fund. Together with the short-term instruments, these funds were used in new investments when we understood that there were good buying opportunities for a long-term investor.”
“Although it was a year of economic crisis, with a drop in the product and increased unemployment, after a slight drop at the beginning of the pandemic, we adapted quickly. Amid the adverse scenario, we found opportunities that allowed us not only to withstand the negative impact of coronavirus, but to mitigate it and even improve the performance of funds compared to 2019. This has resulted in an increase in social security savings, in a year where many people received reduced incomes due to the negative impact of the pandemic on the labour market,” he pointed out.
Hernandez added that the course of the pandemic would be closely monitored, analyzing its impact on the economy both locally and internationally, considering aspects such as the effectiveness of vaccines. In addition, once the sanitary emergency is overcome, the full return of key sectors whose activity was seriously affected, such as transfers, recreation, restaurants or tourism, will be assessed.
Meanwhile, in terms of investment, the main factors to consider will be the global weakness of the dollar; low rates (the value of which depends on the international situation), support for the economies, also adjusting the country's tax and investment plans, and the various players’ prospects that may lead them to decide to continue to favor exposure to investment in emerging markets and in Uruguay.
“On the one hand, having a low-rate world, as we do today in the midst of a crisis, is good news for the country, as you can get cheaper funding than before the onset of the crisis in March 2020, but at the same time it makes it difficult to obtain high yields for your funds. That is where the role of a qualified active manager as AFAP SURA becomes critical,” he added.
“Also, being choosy as we look for risk-adjusted return opportunities that are reasonable for the kind of funds we manage will also be part of the major investment issues to consider in 2021,” Hernandez concluded.