The Almenni-Lífsverk Pension Fund has reported strong investment returns for 2025, despite what it described as “significant volatility” across global and domestic financial markets.

In its latest annual update, the Icelandic fund revealed that its mixed-return options, investing across equities and bonds, recorded returns of 6.1 per cent to 6.6 per cent in 2025.

The fund noted that markets were unsettled by geopolitical tensions, wars, increased defence spending, and uncertainty in the global economy following a change of power in the United States, alongside proposals for tariff increases and ongoing international negotiations.

Despite this backdrop, most of the markets in which the fund invested delivered positive results.

The highest nominal return among these was delivered by Ævisafnir III, which has a higher bond allocation.

The strongest overall performance came from the Bond fund, a diversified domestic bond portfolio, which achieved a nominal return of 8.5 per cent, equivalent to a real return of 4.6 per cent after inflation of 3.7 per cent.

Private equity instruments within the Lífsverk pension fund also generated positive returns, with nominal performance of 5.7 per cent in Lífsverk 1, 6.2 per cent in Lífsverk 2 and 8.4 per cent in Lífsverk 3.

At the start of 2026, these instruments were merged with those of the Almenna private equity fund, consolidating Lífsverk 1 with Ævisafn II, Lífsverk 2 with Ævisafn III and Lífsverk 3 with Skuldabréfasafn.

Meanwhile, both the Almenni and Lífsverk mutual insurance funds, which were merged on 1 January 2026, delivered positive outcomes, with nominal returns of 6.1 per cent and 6.2 per cent, respectively.

The positive returns came as global equity markets proved resilient in 2025.

The MSCI World Index rose by 21.1 per cent in US dollar terms during 2025, although returns were reduced to 9.7 per cent in Icelandic krónur due to dollar weakness.

The fund highlighted sharp market swings early in the year following US tariff announcements, which triggered a short-lived global equity sell-off before markets recovered.

Over the past five years, the MSCI World Index has delivered an average annual return of 12.1 per cent in dollars.

By contrast, the domestic Icelandic equity market struggled.

The main list index fell by 5.9 per cent over the year, with sharp declines among several large companies, although some banking stocks posted strong gains.

Over the past five years, however, the index has risen by an average of 6 per cent annually.

On the fixed income side, the bond market delivered positive returns as the Central Bank of Iceland continued to cut interest rates, albeit more slowly than expected.

At year-end, the policy rate stood at 7.25 per cent, while 10-year indexed and non-indexed bond indices rose by 4.9 per cent and 6.7 per cent, respectively.

Looking ahead, the fund said the outlook for early 2026 remained uncertain, citing domestic economic pressures from high interest rates, inflation, competition in tourism and higher taxes, alongside ongoing global trade and geopolitical risks.

Nevertheless, it stressed the importance of long-term investing through diversified, mixed-asset portfolios, underpinned by a strong focus on asset allocation to manage risk.

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