According to the Association of Insurance Companies, Insurance Investment Funds are bringing in double-figure yields.
Insurance Investment Funds are investment plans linked to life insurance for which a client/investor usually pays a monthly premium.
Based on 2019 data, of the 10 largest insurance funds available to Cypriot investors, nine have positive returns and only one is negative.
Ancoria Insurance’s Savings Fund tops the list with a 14.14% yield, followed by Cyprialife’s Balanced (12.38%), Eurolife’s Mixed (11.76%), Cyprialife’s Cyprialife (11.26%) and Universal Growth (10.24%).
The largest insurance fund is Eurolife’s Mixed Asset of €376.1 million followed by Universal Life’s Growth with €97.3 million.
Investment Funds’ yield performances are attributed to their exposure to stocks in foreign markets.
According to the data on the distribution of the funds’ portfolios, funds prefer to invest in foreign and domestic equity, while also including bonds and debt securities.
Equity and Balanced funds top the largest portfolio list, having large exposure to equities and other investment funds.
Universal’s Growth Fund has a 49.01% equity exposure, followed by Ancoria’s Savings Fund with 47.28% and Eurolife’s Balanced with 44.44%.
Regarding investments in bonds and securities, Cyprialife’s Secure tops the list with 72.6%, followed by the company’s Balanced fund.
In comments to the Financial Mirror, Ancoria fund manager Stelios Petridis said while bank interest rates in the euro area and Cyprus are below or close to zero, they look poised to remain there for the foreseeable future.
“If depositors want to achieve any return on their capital, or even make up for inflation, which is the rate at which prices in an economy increase over time, they will inevitably need to explore alternative solutions and get familiar with investing and risk”.
He notes that 2019 was rich in events and included positive growth prospects for the global economy, indications that the US and China will come to at least a partial agreement and the continued relaxed monetary policy around the world.
“After the dramatic end of 2018, 2019 proved to be one of the best years in terms of stock and bond yields, reminding investors once again of the importance of diversification and investment discipline,” said Petridis.
Following a remarkable 2019, Petridis said that 2020 is expected to be filled with challenges and uncertainties, such as the U.S. elections in November, the outcome of the final Brexit negotiations and the effects of the outbreak of Novel Coronavirus in China.
“All these point towards a volatile 2020,” he said.
“Uncertain times highlight the importance of selecting the appropriate investment strategy according to someone’s needs, but always sticking to the principles of diversification and investment discipline”.
Harris Poyadjis, Fund Manager for CNP Cyprialife, said that Zero/negative interest rates are here and expected to remain anchored at these levels for a few years.
He said that traditional depositors will have to look for alternative income streams while taking into consideration their future needs.
“Given the fact that life expectancy is currently at 81-years-old with a tendency to increase in the future, an ageing population requires tackling the problem imminently, to maintain the quality of life after retirement at the age of 65.”
The fund manager said people are required to save/invest money to try closing the gap between current income and their future social security pensions.
“Based on the above, an alternative would be a modern insurance product (on a regular premium or a single premium product), via the insurance funds such as those offered by CNP Cyprialife, which would give access to a diversified portfolio of assets.
The four major asset classes that most funds invest in are equities, bonds, cash and alternative investments such as real estate,” said Poyadjis.
These funds mainly invest in foreign assets.
Meanwhile, Insurance firms have been promoting another set of investment funds, known as Class 7 investment funds, “similar to the traditional provident funds but with more benefits”.
“Very similar to the classical pension investment funds, they are growing to be a very promising investment alternative in Cyprus,” said director-general of the Insurance Association of Cyprus, Andreas Athanasiades.
The new pension plans dubbed as Class 7 were introduced in Cyprus for the first time in 2015.
Athanasiades said the evolution of class 7 products brought drastic changes to the Cyprus occupational pensions sector and is set to make an even bigger impact in the years to come.
He told the Financial Mirror that these funds offer people a way to complement their future social insurance pension while also offering them an investment opportunity at a time when having money in the bank could prove to be costly.
“Class 7 Investment Funds are similar to the classic Provident funds which are set up by occupational groups, unions and companies for their employees, but are managed by insurance companies and are regulated by the legal framework regulating insurance companies”.
Class 7 pension funds can be flexible products, customised and adaptable to all types of organisations regardless of size and sector.
Petridis said these funds are hassle-free and do not have set-up costs for unions or occupational groups as opposed to traditional provident funds,
Ancoria’s fund manager said that companies deciding to join may set their criteria for the inclusion of their employees in the Ancoria Pension Plan and set the level of tax-deductible contributions.
“It can be adapted to each employee’s current needs and desires and members may choose their own investment strategy and switch between pension funds,” he said.
Source: Financial Mirror