By the end of October 2022, the NAV of Croatian pension funds amounted to HRK 130.8bn, representing an increase of 1.1% MoM, but a decrease of 1.6% YTD.
Recently, the Croatian Financial Services Supervisory Agency (HANFA) published its latest report on the changes recorded by the Croatian mandatory pension funds, for the month of October 2022. In it, we can see that the NAV of the pension funds amounted to HRK 130.8bn, an increase of 1.1% MoM, 0.2% YoY, but a decrease of 1.6% YTD. Meanwhile, the net contributions into the funds amounted to HRK 705.4m, which would mean that on a YTD basis, they amounted to HRK 6.81bn.
Mandatory pension AUM structure change (January 2018 – October 2022, HRKbn)
Source: HANFA, InterCapital Research
In terms of the changes recorded in the asset holdings, on an MoM basis, the largest absolute increase was recorded by deposits and cash holdings, which increased by HRK 2.38bn (or 47%), followed by investment funds, which increased by HRK 649.8m (or 4.8%), and shares, which increased by HRK 462.7m, or 1.8%. On the other hand, bond holdings decreased by HRK 1.77bn, (or 2.1%), while other asset holdings decreased by HRK 524m (or 60.7%) MoM. In total, the NAV on the monthly basis increased by 1.1% or HRK 1.4bn.
Meanwhile, on a YoY basis, the picture is somewhat similar. The largest increase was also recorded by deposits and cash, which increased by HRK 2.1bn, or 39%, while bond holdings increased by HRK 424.7m or 0.5%. On the flip side, shares recorded the largest decrease, declining by HRK 1.37bn, or 5.1%, followed by investment funds, which lost HRK 524m, or 3.6%, and receivables, which declined by HRK 483.9m, or 59%.
The decline on the yearly basis in terms of the shares and investment funds is due to the current macroeconomic and geopolitical environment, which includes high inflation and a lot of risk aversion to investments into riskier types of assets such as shares, and to an extent, investment funds. As such, the decline in the value of these assets has been recorded. Moreover, the pension funds themselves are also even more risk averse, due to their long-term investment strategy and the risk reduction requirements that are placed on them. As such, the increase in the most liquid and the least risky types of assets, i.e. deposits and cash, is expected, even if these assets yield by far the lowest returns. On the monthly basis, however, we can see that there has been somewhat of a slowdown in the trend, as more investments are made into shares and investment funds, while the decline in the value of bonds can be attributed to the overall decline in the bond market we have witnessed as a result of said macroeconomic developments.
Looking over to the asset structure of the pension funds, the bond holdings still maintain the majority, at 63.2%, (or HRK 82.6bn), which is a decrease of 2.05 p.p. MoM, but an increase of 0.7 p.p. YoY. Shares are the next largest holding, at 19.6% (or HRK 25.7bn), which is an increase of 0.14 p.p. MoM, but a decrease of 0.9 p.p. YoY. Finally, the only other holding above 10% are the investment funds, which have 10.9% of the total (or HRK 14.2bn), an increase of 0.38 p.p. MoM, but a decrease of 0.3 p.p. YoY.
Current mandatory pension funds AUM (October 2022, %)
Source: HANFA, InterCapital Research
Meanwhile, dividing the bond and equity holdings into domestic and foreign, the domestic bond holdings account for 93.3% of the total bond holdings, representing an increase of 0.14 p.p. MoM, while the foreign bond holdings account for the remaining 6.7%. On the other hand, domestic equity holdings account for 60.7% of the total equity holdings, which is a decrease of 1.3 p.p. MoM, while foreign equity holdings account for the remaining 39.3%.