Danish pension PFA reported record returns of DKK57.3 billion ($8.5 billion) for the first three quarters of the year with the total return related to the market rate environment at 10.5%.
The pension, which is Denmark’s largest commercial pension company with 1.3 million customers, said the first three quarters of the year have been marked by extremely favorable conditions for the financial markets. During the third quarter alone, the total return grew by DKK17.6 billion.
“2019 have turned out to be a very good year for pension savers, who have gained on both swings and roundabouts,” PFA CIO Kasper Lorenzen said in a release. “We have seen dropping interest rates and a bond market that performed well simultaneously with the equity market roars ahead. Also, properties and alternatives have yielded strong returns, making this a year where everything seems to form a synthesis.”
All asset classes contributed positively to the portfolio’s returns for the first three quarters of the year, led by listed equities, which returned 18.8% thanks to significant exposure to US equities. This was followed by alternative investments, bonds, and real estate, which returned 8.6%, 5.8%, and 4.1% respectively during the same time period. The fund said falling interest rates resulted in solid returns for all bond types, particularly corporate bonds, which it said have benefited from the global low interest rate environment.
Despite the strong returns, Lorenzen cautioned that the situation can easily change.
“Looking back just a year, the situation was completely different with worries of a significant downturn on the financial markets being imminent,” he said. “With the unrest that has characterized the past years, things may turn around quickly, and, therefore, it is important not to get speed-blind when things are going well.”
PFA said the outlook for the rest of the year has brightened up, and the “dark clouds” it saw at the beginning of 2019 have dissipated a little. It said that central banks in the US, Europe and Asia have lived up to market expectations with additional rate cuts, while the trade war between China and the US is “somewhat on hold.” The fund also said the US economy is promising as it has a high level of demand and continued low unemployment.
The fund said, however, there are also risks that could create a dimmer picture, such as declining growth in China and Europe. It also noted the political uncertainty concerning Brexit, which it said will continue to be a cause for concern on the financial markets for a long time.
“It is difficult to say for how long the positive trend we have seen this year will continue because we are still in a borderline territory, where negative surprises may easily tip the balance and revive the fear of a recession,” said Lorenzen, who emphasized that it now owns more than DKK100 billion in unlisted investments. “This ensures diversification of risk, which we also believe will generate value in the long term.”