Introduction to Afores and Market Volatility
Guillermo Zamarripa, President of the Mexican Association of Pension Fund Administrators (Amafore), acknowledged that market volatility in the U.S. and Mexican stock markets has led to minusvalías (losses) for the 10 private pension fund administrators operating in Mexico.
Market Volatility Impact on Afores
Zamarripa explained that although the recent market fluctuations have affected portfolio valuations, Afores maintain their long-term investment strategy and do not alter their portfolios in the short term.
- First quarter of 2023 experienced significant market volatility
- January was a good month, while February and March were less favorable
- April saw a minusvalía of 31,674 million pesos, which is being corrected in May
Importance of Diversification and Long-Term Vision
According to Zamarripa, the key to successful Afore management lies in diversification and a long-term investment horizon.
He cited the example of Warren Buffett’s Berkshire Hathaway, which invests in assets with a vision spanning five to ten years. Similarly, Afores have investment horizons of 12, 24, 36, and 48 months or longer.
“Each portfolio manager structures the portfolio strategically, always with a long-term vision and adhering to market trends for the optimal combination,” Zamarripa explained.
Afore Investment Breakdown
Based on data from the National Commission for the System of Retirement Savings (Consar), Afores manage 7,189,886 million pesos from 69.1 million accounts, with 6.47% invested in the Mexican stock market and 12.7% in foreign equity markets.
Afore portfolios are diversified, investing in government bonds (51.39%), real estate fibers (2.66%), foreign debt (0.66%), private debt (13.3%), and structured instruments (8.47%).
- 6.47% of resources are allocated to foreign company stocks
- Afore Azteca invests the most in foreign stocks (19.29%), while Afore Banamex invests the least in Mexican stocks (4.4%)
- Afore Inbursa invests the least in foreign stocks (8.6%)
- Afore Profuturo allocates 60% of resources to loans to the government, whereas Afore Azteca allocates only 43.9%
Key Questions and Answers
- What are Afores? Afore is an acronym for Administradoras de Fondos para el Retiro, private pension fund administrators in Mexico.
- Why is long-term vision crucial for Afores? Afores maintain a long-term investment strategy to navigate market volatility and avoid short-term reactions that could negatively impact their clients’ retirement savings.
- How are Afore resources allocated? Afores invest in various assets, including government bonds, real estate fibers, foreign debt, private debt, and structured instruments. They allocate a portion of their resources to foreign and Mexican company stocks.
- What is the significance of diversification? Diversification helps Afores mitigate risks associated with market volatility and ensures a balanced portfolio that aligns with their long-term investment strategy.
