2020 was a year of ups and downs. But a study by independent Swiss online comparison service moneyland.ch shows that Swiss retirement funds delivered positive performance over the past year in spite of the bleak economic picture. Most savers who invested their pillar 3a retirement assets in funds did not have to deal with losses.
How Swiss retirement performed in the corona year
The 61 Swiss retirement funds included in the study yielded an average return of 3% after TER costs in 2020. For reference, in 2018 Swiss retirement funds performed significantly worse, with a 4.8% average loss. In 2019 they performed substantially better in than in 2020, with an 11.8% average return in that year.
Funds designated as high-risk by banks – meaning funds with the biggest stock components – delivered the highest performance. Retirement funds with minimal stock components delivered an average return of 0.8% (after deducting TERs) in 2020. Average returns where higher for funds with small stock components (1.7%), mid-sized stock components (2.9%), large stock components (3.4%), and very large stock components (5.4%).
“When you look at returns over the past 10 years, stock funds have performed the best,” says moneyland.ch analyst Felix Oeschger. That is not surprising in the decade following the drastic stock market collapse of the financial crisis. But the same pattern applies throughout: “Higher stock components generally pay off for investment terms of more than 10 years.” However, savers have to be able to weather the losses of lean years.
Stock market performance in the corona year compared
Swiss retirement funds were able to develop positively in spite of the coronavirus crisis because the stock market performed well. In order compare fund performance with stock market performance, moneyland.ch evaluated the total return figures of major stock exchanges. Total returns are the easiest figures to compare with the returns of funds because like Swiss retirement funds they account for accruing dividends.
The Swiss Market Index (SMI) climbed by 4.4% in 2020, and the Swiss Performance Index (SPI) climbed by 3.8%. Losses in the value of Swiss stock index heavyweights Nestlé (-0.5%), Roche (-1.6%) and Novartis (-9%) are largely to blame for the relatively conservative growth. The US stock market, on the other hand, soared to new heights in the first year of the corona crisis. The S&P 500 index gained 18.4% in 2020. That is relevant because Swiss retirement funds also invest in US stocks.
Individual retirement funds compared
Retirement funds with big stock components delivered the highest returns in 2020. The LUKB Expert-Vorsorge 75 retirement fund from the Luzerner Kantonalbank delivered performance of 6.7%. The frankly Strong 75 Active from the Zürcher Kantonalbank also had 6.7% performance. The CSA Mixta-BVG Equity 75 fund from Credit Suisse delivered performance of 6.6%, and the ZKB Swisscanto BVG 3 Responsible Portfolio 75 RT CHF from the Zürcher Kantonalbank delivered performance of 5.9%.
It is important to note that performance has fluctuated heavily over the past year. Losses of 20% or more were not uncommon among funds with large stock components during the spring of 2020. Investors who sold their retirement fund shares during the spring of 2020 could have incurred losses of more than 20%.
Performance is not a key factor for choosing funds
Although performance after costs makes a major difference to your investment, past performance is not a good criterion for choosing a retirement fund, explains moneyland.ch CEO Benjamin Manz.
The reason for this is that past performance is not a clear indicator of future performance. Costs are a much more important criterion. You should use the most affordable funds which match your specific investment strategy.
Digital retirement asset management services provide an alternative to conventional retirement funds, and in many cases the costs are lower. The retirement fund performance study does not account for retirement asset management services because only the performance of conventional funds which have individual ISINs could be properly evaluated.
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