Inflationary pressures have been a focal point for central banks, particularly the Federal Reserve, which has closely monitored developments amid a backdrop of fluctuating geopolitical dynamics. These tensions pose significant upside risks to inflation, adding a layer of complexity to monetary policy considerations.
Throughout the past year, inflation experienced a rapid descent, prompting growing confidence within the Federal Reserve that core inflation would converge towards its target levels by the end of 2024. Therefore, the Federal Reserve’s stance on monetary policy shifted and has led market participants to anticipate a series of rate reductions throughout 2024, as policymakers seek to navigate the evolving economic landscape.
The development of inflation and expectation of interest rate cuts led to a 2-year low in the credit spreads on investment grade corporate bonds in the Eurozone and the US after contracting throughout the previous quarter. Today, yield curves in the Eurozone and the US remain inverted.
Within the US labor market, there has been a balanced interplay between available job opportunities and labor supply dynamics, supported by many reliable labor market indicators. This balance serves to demonstrate the resilience of the US economy amid broader global uncertainties. This resilience stands in contrast to the experiences of other advanced economies such as the Euro area, the UK, and Canada, which struggled with recessionary pressures throughout 2023. This divergence shows the importance of effective monetary policy in navigating uncertain geopolitical situations and sustaining economic growth.
Given these conditions, Pensions Caixa 2 F.P., obtained a positive return of +4.5% over the first quarter in 2024. In addition, it should be noted that the Fund also managed to beat both its investment target (3-month Euribor + 3.5% annualized over 5 years) and the CPI. A closer look at the performance of Pensions Caixa 2, F.P. and the contribution of the asset classes highlights the positive attribution of the equity positions and reinsurance added to the Fund’s final return. However, due to the above-mentioned inflation and interest rate developments in the past quarter, the allocation to fixed income, despite still making a positive contribution, was not as strong. Only the allocation to non-euro government bonds and currency hedging should be emphasized as negative factors in the overall performance.
As of the end of the first quarter of 2024, the Pensions Caixa 2, F.P. ranks among the top 5% of the best funds for Employment Tax Qualified Pension Funds in Spain at 5 and 10-years and among the top 25% of the best funds for the 1- and 3-year period.
In conclusion, even in the current uncertain economic climate, Pensions Caixa 2, F.P. remains a highly attractive investment option for its participants, as its performance exceeds targets, and its profitability stands out in the market.