A year of extremes

2020 was a unique and spectacular investment year. At the beginning of 2020, the rapid spread of the coronavirus and the associated lockdown measures caused the fastest ever downward correction of stocks. In one month, share prices lost more than 30% in value. Other investments also achieved significantly negative returns in the first quarter of 2020.

In the following quarters, financial markets showed their resilience. This resilience was driven on the one hand by the intervention of governments, which introduced massive support packages to keep the economy going, and on the other by the intervention of central banks, which didn’t hesitate to use their full range of instruments to stimulate the markets.

The election of Joe Biden as US President and the announcement in November 2020 of the first highly effective vaccines have also benefited the markets. Despite this very unique and turbulent investment year, equities concluded the year with positive returns.

Interest rates had already fallen sharply by the beginning of 2020. Economic sentiment, generous financial support from governments and the intervention of central banks were responsible for this. The falling interest rate movement has resulted in positive results on bonds. At the same time, the drop in interest rates has had a strong upward effect on the value of pension benefits within the Collective Variable Pension.

The further decline in interest rates has only reduced the expected return on bonds from the Netherlands and Germany. Partly because of this, more and more investors have started investing in alternatives such as shares, which has had a positive effect on the valuation of such categories.

The year of extremes ended positively. Looking at the returns at the beginning and end of 2020, one would think it had been a very average year, even though an unprecedented pandemic had broken out, resulting in high volatility on the financial markets throughout the year. In the end, almost all known stock market indices (a stock market index is a basket of shares or bonds that serves as an indicator of developments on a particular stock or financial market) rose during 2020.

The North American stock market experienced a very good year due to the strong growth of technology stocks. A large part of this result was generated by the big five: Google, Microsoft, Apple, Facebook and Amazon. The European stock markets also concluded 2020 on a positive note.

Due to lower interest rates, the Interest and Matching portfolios both achieved a positive performance. Due to the higher interest rate sensitivity of the Matching portfolio, the result is also higher than for Interest. Like the equity markets, the Return portfolio shows a positive result. The portfolio achieved a lower result than the benchmark because part of the Yield portfolio was positioned more defensively to mitigate large fluctuations (particularly negative fluctuations). The CVP’s investment portfolios also achieved good returns thanks to prudent hedging of interest rate risk and the strong recovery of financial markets. The good result on CVP’s investments made it possible to increase pensions within the CVP.