The average funding ratio of Dutch pension funds fell to 118 per cent in July, down from 120 per cent, according to the latest analysis by Aon Netherlands.

Aon said that following months of increases to the funding ratio, the picture is now changing. In addition, the policy funding ratio, the average of the funding ratio over the past 12 months, also fell to 118 per cent in July.

Providing an economic update for the month, Aon said that July saw volatility return to the stock market.

Geographically, uncertainty heightened following the Labour win in the UK, and in France, the gains of the left-wing alliance in the elections led to a hung parliament.
In the US, there was the attack on the Republican candidate, Donald Trump, and the withdrawal of Biden from the election campaign, with Kamala Harris taking over the helm for the Democrats.

In addition, the growth of the US economy appears to be levelling off slightly, which saw investors see opportunities for interest rate cuts again, despite slowly falling inflation. Headline inflation in the US came in at 3 per cent in June, up from 3.3 per cent in May.

Eurozone inflation eased to 2.5 per cent in June from 2.6 per cent in May. The European Central Bank (ECB) maintained its policy rate at 3.75 per cent. ECB president, Christine Lagarde, stressed that she will take a data-driven approach to future rate cuts and not commit to a particular interest rate path in advance.

Initially, shares rose 3 per cent in July but then began to fall. In the end, developed market equities still managed to add a 0.2 per cent return, while emerging markets fell by 0.7 per cent.

Furthermore, during the month, interest rates fell sharply, causing real estate stocks to rise almost 5 per cent and the fixed income portfolio by 4 per cent. The riskier bonds also benefited: corporate bonds (1.7 per cent), high yield (1.6 per cent) and emerging markets hard currency (1.4 per cent). The portfolio's total return this month was 1.7 per cent, Aon said.

On balance, the risk-free interest rate fell by an average of 20 basis points over the first 40 years in the space of a month. As a result of the fall in interest rates, the value of liabilities increased by approximately 3 per cent. Therefore, as a result of the 1.7 per cent increase in assets in July, the indicative funding ratio fell by approximately 2 per cent on balance.

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