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For more than 20 years, the return of the Euro fund has been declining. It fell from more than 5% in 2000 to 1.30% in 2021. Although the French have gradually become accustomed to the meager returns of capital-guaranteed investments, and in particular funds denominated in euros, this level of performance is hard to accept when inflation takes hold. up again. But the Euro Fund has not said the last word and will start rising again in 2022, with an average return of around 1.80%. What factors are behind the increase in the return of the Euro Fund? Should we rush into the Euro fund or diversify with unit-linked support? All our explanation.
The three main reasons for the fund’s rise in euros
The rise in long-term interest rates
Inflation has prompted central banks to raise their policy rates, leading to a rise in bonds. Indeed, this rise in central bank interest rates forces issuers to offer more attractive rates to attract new investors to finance their projects or developments. So it’s not uncommon to find bonds offering returns of 4 or 5%, or sometimes even more.
The Euro fund, mainly composed of bonds, at 77.63% for the classic Euro fund in 2021, at 52.13% for the real estate Euro fund in 2021 and at 62.68% for the dynamic Euro fund in 2021 (source: Good Value for Money) . It therefore makes sense that the Euro Fund will benefit from this rise in bond yields and see its performance improve in 2022. The increase should continue or even become stronger in 2023.
The pickaxe in the reserves of the insurers
To boost the performance of the euro fund, it is also possible for life insurers to draw on their reserves. Indeed, insurers can reserve part of the financial performance of their funds in euros to redistribute it later to their policyholders. According to GoodValueforMoney, insurers had the equivalent of 4.87% return in reserve at the end of 2021, hence the ease with which life insurers could push fund returns in Euros to an average of almost 2% in 2022.
Competition from regulated savings
It must be said that life insurers had to resist regulated savings to boost the performance of the Euro fund, under penalty of a capital flight to the Livret A and LDDS savings accounts which had risen to 2% in August 2022. The answer was therefore immediate: an increase in the Euro fund so that it retains its attractiveness compared to regulated savings accounts. Remember that the Livret A account returned 1.375% for the year 2022 (0.5% from January 1, 2022 to January 31, 2022, then 1% from February 1, 2022 to July 31, 2022, then 2% from August 1, 2022 to 31 December 2022. 2022).
And competition from regulated savings has increased further in 2023 with a Livret A and an LDDS showing an interest rate of 3% since February 1, 2023, which should encourage insurers to boost the returns of their Euro funds again in 2023.
Read also: Where to invest with life insurance in 2023?
Should we take advantage of the fund’s rise in euros to invest in it or should we diversify?
A rate that is still far below inflation
Admittedly, the return of the Euro fund has reached a level not seen in years and the best Euro funds will offer very attractive interest rates in 2022, above 2%. However, it should be remembered that these are not only gross rates, but also and above all that these rates are well below inflation, which was 6% over a year in January 2023. Result: the performance of the Euro fund, however good it may be, does not cover inflation. The inflation-adjusted return on this investment is therefore clearly negative. So be careful before rushing this support.
A necessary diversification
In this context, it is therefore essential to opt for the diversification of its investment in life insurance and to place part of its outstanding amounts on the supports in units of account of its contract in order to improve the return on its investment. It may therefore be appropriate to move into equity UCs through live securities and/or ETFs and classic UCITS, but also into the real estate market with, for example, paper stone and unit-linked investments on SCPIs, which are showing record inflows and attractive returns (4 .53% in 2022), but also SCIs, on which you can invest in a very diversified way.