In April, the stock markets in particular have once again shown positive trends. As at 17 April, the return on the Employees' Holiday Allowance Fund stood at 2.2% year-to-date. For LD Discretionary, which is the largest investment fund within The Cost-of-Living Allowance Fund, the return for the same period was 0.9%.
This means that the negative returns from the first quarter – when LD Discretionary recorded a return of -1.9% and The Holiday Allowance Fund -2.0% – have more than been recouped.
A quarter marked by geopolitics and an energy shock
The key event in the first quarter was the war in the Middle East, which led to severe restrictions on shipping through the Strait of Hormuz – the world’s most important route for the transport of oil and natural gas. This triggered sharp rises in energy prices.
The price of oil rose by 70 per cent, reaching its highest level since 2022. This reignited global inflation concerns and altered expectations regarding central banks’ monetary policy. Whereas at the start of the year the market had expected interest rate cuts in the US and stable interest rates in Europe, by the end of the first quarter expectations pointed to unchanged interest rates in the US and interest rate rises in Europe.
Uncertainty about the way forward
At the end of the first quarter, the Strait of Hormuz was effectively closed whilst the US and Iran were negotiating a solution. Since then, the strait has been reopened and closed again, and the situation remains highly uncertain. The markets appear to be pricing in a return to normality sooner than the current geopolitical situation would suggest.
Should oil prices rise further, this could in turn Press inflation and limit central banks’ room for manoeuvre, which could have negative consequences for global growth. Conversely, a lasting breakthrough in the negotiations and a stable reopening of the strait could normalise energy prices and provide renewed momentum for the financial markets.
The current risk picture
Fluctuations in the financial markets have become a fundamental reality for investors. In LD Pensions, clear risk parameters have been established for its portfolios, which are actively managed with a focus on securing the best possible returns for members, whilst limiting the risk of loss.
The Holiday Allowance Fund consists of both an investment portfolio and a receivable from employers in the form of holiday allowance that has not yet been paid in. The receivable from employers is a secure asset and thus contributes to the stability of the savings, particularly during periods of negative fluctuations in the financial markets.
The Cost-of-Living Allowance Fund has an investment horizon that takes into account the age distribution of its members and the fact that all members are eligible for payouts. The portfolio therefore has a lower risk profile than the Holiday Allowance Fund.
In LD Pensions, developments are monitored closely. If the risk of a protracted war increases, active measures will be taken to reduce the risk in the portfolios.
