Iceland’s Frjálsi Pension Fund has reported real returns ranging from 2 per cent to 4.7 per cent in 2025.

Publishing its annual results, the pension fund said that investment options with a high proportion of bonds yielded the highest returns during the year, with nominal returns ranging from 5.8 per cent to 8.6 per cent.

The pension fund noted that market conditions seen in recent years highlight the importance of having a diversified portfolio that can withstand market fluctuations.

Frjálsi Pension Fund aims to invest in different asset classes, industries and geographies to spread risk as much as possible.

Iceland’s interest rate, set by the Central Bank, currently stands at 7.25 per cent, having fallen by 1.25 percentage points, while inflation has remained virtually unchanged year-on-year.

It noted that during the year, bond yields generally fell in line with economic shocks.
However, the rise in inflation in December partially halted the downward trend in yields.

Despite these fluctuations, the change in yields and bond price developments overall was fairly stable during the year, and government bond yields yielded nominal returns in the range of 4.6 per cent to 8.8 per cent, with shorter-term bonds yielding higher yields than longer-term bonds.

The Iceland Stock Exchange's Composite Index (OMXI15CAP) showed little change year-on-year. Despite this, the year was marked by considerable volatility, with the index falling significantly in April following Donald Trump's tariff policies, Frjálsi stated.

However, the market subsequently managed to recover, and the index ended the year almost unchanged.

Despite this, the pension fund stated that the performance of individual companies was very uneven. There was a significant difference in company returns, with Arion Bank delivering the best results for the year and Alvotech the weakest.

Meanwhile, foreign equity markets continued to perform strongly in 2025 despite ongoing global economic uncertainty, geopolitical tensions and political risks.

For example, the World Stock Exchange Index (MWXO) rose 19.5 per cent in USD terms and 7.8 per cent in ISK terms. Performance was driven by a small number of large technology companies, with expectations of continued growth, development and increased use of artificial intelligence being key drivers.

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