Swedish pension fund AP2’s investment portfolio returned 10.7% after costs during the first half of 2019, raising the fund’s total asset value to SEK367.4 billion ($37.7 billion).
Although the strong performance easily surpassed the fund’s long-term assumed rate of return of 4.5% a year, it was 0.4% below that of its benchmark index, excluding alternative investments and costs.
“The beginning of 2019 saw a strong recovery in the world markets after the major downturn at the end of 2018, however, this was followed by growing concern that global real economic growth may lose momentum,”AP2 CEO Eva Halvarsson said in statement.
“This concern was amplified by uncertainties regarding Brexit and, in May and June, the escalating trade conflict between USA and China,” she added. “This political uncertainty seems to have played a part in a declining investment climate the world over.”
The fund’s average annual real return rate over the past 10 years has been 8.1%, according to the H1 report.
The total return of the fund’s Swedish and foreign equity portfolios for the half-year was 19.8% and 21.5% respectively. Emerging-market equities increased in value by 13.9%, while Swedish fixed-income securities returned 1.1%. Emerging-market bonds , foreign credits, green bonds, and foreign government bonds returned 13.6%, 13.5%, 10.5%, and 9.9%, respectively.
Meanwhile, the fund’s alternative investments, which are made up of Chinese domestic market equities, non-listed real estate, private equity funds, alternative risk premiums, and alternative credits, returned 7.7%.
In the first half of the year the fund adjusted its listed portfolio to increase its holdings of real estate and private equity funds while reducing its allocation to Swedish and foreign equities, and Swedish bonds. It also increased its capital allocated to emerging-market bonds issued in US dollars. The fund’s board also decided that the fund will no longer invest in tobacco companies, or companies that are involved in the maintenance and modernization of nuclear weapons systems.
AP2 also completed a reorganization in the spring and the fund’s sustainability analysts are now part of the asset management’s strategy, as it looked to integrate sustainability issues into the fund’s management. During the first half of the year it voted at 74 general meetings for Swedish listed companies, and at 742 foreign general meetings, the plan said.
The asset allocation of the portfolio as of the end of June was 28.4% in alternative investments, 20.4% in developed markets equities, 10.5% in fixed-income, foreign credits; 10.4% in emerging markets equities; 9.1% in Swedish equities; 8.7% in 7.5% in fixed-income, emerging markets; 4.0% in fixed-income, foreign government bonds; and 1% in fixed-income, global green bonds.